We previously wrote about a Michigan Supreme Court decision to reinstate two voter initiatives – the Wage Act and the Earned Sick Time Act (ESTA) – and state agency responses to that decision (the “Original Order”), which included the filing of a motion asking the court to clarify the Original Order.

On September 18, 2024, the Michigan Supreme Court responded, granting the request for immediate consideration and issuing a thirteen-page Order (the “Clarification Order”).

New Details on Coming Adjustments to Michigan Wage Rates

Tip Credit Phase Out

The substantive portion of the Clarification Order re-writes a lengthy and important footnote in the Original Order, including an extension of the gradual phase-out of the tip credit and a clearer definition of the annually increasing percentage amount. Instead of merely saying “The tip credit will be [XX]% of minimum wage,” the Clarification Order provides that “tipped workers’ minimum hourly wage rate must be at least [XX]% of the general minimum wage rate, and the tip credit can be used to satisfy the balance owed to such workers.”

In other words, the Clarification Order spells out that, for example, “80%” means that tipped workers must be paid a base rate that is at least 80% of the general minimum hourly wage rate.

The phase-out of a separate wage rate for tipped workers will begin on February 21, 2025, when a new minimum wage will take effect, and tipped workers must be paid at an hourly rate of at least 48% of that wage. A year later, tipped workers will be entitled to a wage that is 60% of the minimum wage. Wages will rise each year, with the difference between tipped workers and general wage earners shrinking by 10% annually until 2030, when the tip credit ceases and employer must pay tipped workers the same minimum wage rate as all other employees.

Annual February 21st Increases

In their motion, state officials asked whether, starting in 2026, they should revert to increasing the minimum wage annually on January 1, since the original Wage Act, which the Original Order reinstated, contemplated that date. The court in the Clarification Order, however, held fast that each step in the Wage Act’s graduated changes to the minimum wage were contemplated to have a duration of one full year. The Wage Act will now take effect on February 21, 2025 (rather than on January 1, 2019, as originally anticipated). Thus, going forward, Michigan will be unique: while most jurisdictions adjust their minimum wage rates either on January 1 or July 1, Michigan will be the only state to regularly adjust its minimum wage rates annually on February 21st.

Adjusting the Minimum Wage Proscriptions for Inflation

The state also asked the court to confirm its interpretation of how it should recalculate the minimum wage rate increases listed in the Wage Act, as required by the Original Order. In the Clarification Order, the court agreed with the state’s understanding: the treasurer must calculate new annual minimum wage amounts based on the effects of inflation on the original amounts that were originally intended to take effect beginning January 1, 2019. The adjustment should be calculated based on the inflation rate on the Original Order’s date of issue (July 31, 2024) and must be published by November 1, 2024.

Meanwhile, Back at the Legislature

On September 11, 2024, new legislation was introduced that would once again modify the Wage Act and ESTA. Senate Bill 991 (SB 991) and Senate Bill 992 (SB 992) seek to effectively restore the amendments that the Supreme Court overruled in its July 31, 2024 decision on grounds that were more procedural than substantive. The bills have both been referred to committee. It is unclear whether there will be sufficient support to pass these bills, which would retain the status quo of today and block the changes expected to take effect February 21, 2025.

What’s Next for Michigan Employers

Employers should prepare for the coming requirements under both ESTA and the Wage Act. Once the state announces the adjusted minimum wage rate changes, or if anything else changes, we’ll let you know.

Elizabeth A. Ledkovsky, Staff Attorney for Epstein Becker Green, assisted with the preparation of this article.