Added on August 5, 2024  Sara Swanson

What to know about Michigan’s pending minimum wage changes

by Paula Gardner, Jordyn Hermani, & Mike Wilkinson (Bridge Michigan)

LANSING — Massive changes to the state’s minimum wage and paid-time-off laws will likely take effect in early 2025 following a ruling issued Wednesday by the Michigan Supreme Court.

The ruling means more money in the hands of the lowest-wage workers, but business owners warn it could lead to business shutdowns and job losses.

The changes are the outcome of litigation dating back to 2018, when a proposal to eliminate Michigan’s tipped minimum wage was passed by the Republican-led Legislature before it could reach the ballot.

Legislators quickly modified the new laws — in a move called “adopt and amend” — amid pressure from business groups and the restaurant industry, significantly paring down the plan. Groups of worker advocates sued, with the case reaching the state Supreme Court in 2023.

Here is what you need to know about the ruling so far:

What is changing?

The ruling makes two changes to the state’s workplace laws.

First, it increases minimum wage and eliminates the tipped minimum wage paid primarily to restaurant servers and bartenders.

The second change requires that all employees, including part-time and seasonal, receive one hour of paid medical leave for every 30 hours worked, up to 72 hours annually.

Before Wednesday’s ruling, sick time was earned by employees of businesses of 50 people or more, and capped at 40 hours.

What effect will this have on wages?

The decision means Michigan’s $10.33 minimum wage will likely climb above $12 next year and continue to rise through 2028, depending on inflation calculations by the state.

The move also eliminates the tipped minimum wage, which has allowed employers to pay tipped employees as little as $3.93 per hour due to a so-called “tip credit” where tips fill the gap.

However, the state has not yet confirmed the figures. The Department of Labor and Economic Opportunity told Bridge it was reviewing the court’s decision on Wednesday afternoon.

How high will the minimum wage go?

That’s not yet clear.

Because the $10 starting wage the ballot initiative called for in 2019 is no longer worth $10, the court is requiring the state treasury to adjust the rate based on inflation.

The ruling requires additional increases in future years.

Meanwhile, an initiative to raise that to $15 per hour by 2027 was not allowed on the 2024 ballot after petitions were not certified.

When do the changes take effect?

They will start on Feb. 21, barring legislative moves to alter them.  Changes to the tipped minimum wage will be phased in over four years to reach full effect.

What do employers need to know about the change?

Business advocacy groups are still sorting that out.

Many legal groups and business chambers are organizing meetings to answer questions about both minimum wage and paid-time-off changes.

Among the outreach efforts scheduled so far is a Zoom conference by the Grand Rapids Area Chamber of Commerce on Friday morning.

The state’s Labor Department, meanwhile, says it will initiate “educational outreach to ensure a thorough understanding and smooth implementation of the court’s ruling.”

Who is supporting the decision?

Many labor advocates and social justice groups wanted the changes, saying that paying tipped workers the full minimum wage and giving them access to tipped income is most fair to them.

“We have finally prevailed over the corporate interests who tried everything they could to prevent all workers, including restaurant workers, from being paid a full, fair wage with tips on top,” progressive labor group One Fair Wage said in a statement on Wednesday.

Some Democrats, including Speaker of the House Joe Tate, D-Detroit, are also cheering the Supreme Court’s decision, saying it brings clarity to what the Constitution allows when the Legislature adopts ballot proposals.

“This is a landmark victory for Michigan voters and a resounding affirmation of the power of direct democracy,” Attorney General Dana Nessel said in a statement. “The Legislature cannot manipulate its power to undermine the will of the people.”

What are businesses saying about the ruling?

Multiple business groups are sounding the alarm, including leading chambers of commerce, the Small Business Association of Michigan and the Michigan Restaurant and Lodging Association.

Justin Winslow, president and CEO of the MRLA, was quick to blast the ruling as “tone-deaf.”

In a statement immediately following the court’s decision, he called the pending worker wage increase “a likely existential blow to Michigan’s restaurant industry,” citing a survey that showed 20% of full-service restaurants could close permanently if the tip credit was eliminated.

To be successful, small businesses need reasonable and stable public policies from their state government, said Brian Calley, CEO of the Small Business Association of Michigan and Republican lieutenant governor when the Legislature initiated the “adopt and amend” policy.

“There is zero doubt among the small business owners we represent …  that these new mandates will have an absolutely devastating effect: reducing planned growth, forcing layoffs and possibly even causing many to close their doors for good,” Calley said Wednesday in a statement.

How many workers will be affected by the change?

That’s a good question. The group that pushed the ballot initiative, One Fair Wage, estimates that as many as 434,000 workers either make minimum wage or are paid a tipped minimum wage.

If true, that’d be one in every 11 workers in a state where 4.9 million people are employed.

But the researchers who estimated that total for One Fair Wage, the progressive Economic Policy Institute, also estimated in 2023 that just 52,000 Michigan workers were making minimum wage, now at $10.33. And the institute’s own interactive data tool currently estimates that 226,000 make less than $12 an hour.

Brad Hershbein, a labor economist with the W.E. Upjohn Institute for Employment Research in Kalamazoo, told Bridge Michigan that roughly 3% of all workers in Michigan make less than $12 an hour. That does not include the tipped-minimum workers who likely, with tips, exceed $12 an hour.

Based on that percentage, it’d be about 146,000 workers in the state making less than $12 an hour.

Other state labor data shows that there are 67,000 waiters and waitresses in the state making an average of $19.03 an hour, and 18,200 bartenders making an average of $17.72 an hour. Both make up the bulk of the state’s workers earning the tipped minimum wage.

Those same statistics show that even the lowest earners in Michigan — motion picture projectionists, restaurant hosts and hostesses and dishwashers — are already above the current minimum wage of $10.33 and no class of worker is making less, on average, than $12.76 an hour.

Can the Legislature make changes?

Wednesday’s ruling does leave the door open for potential future changes to both the minimum wage and sick time ballot initiatives, which the Legislature adopted in 2018.

Lawmakers are only prohibited from adopting and amending those initiatives in the same session they are adopted, the court wrote, meaning legislators “may amend the law during subsequent legislative sessions.”

What those changes would be appears unclear at the moment, however, as lawmakers and legal experts continue reviewing the court’s ruling.

It’s possible they could involve changes to the schedule for future pay increases or setting additional parameters around sick leave, said John Lindstrom, former publisher of the Capitol outlet Gongwer News Service.

Lindstrom told Bridge Michigan Wednesday he was doubtful the changes would include massive overhauls to the initiative petitions, considering Democrats control both the Legislature and governorship and seem mostly in favor of the change.

Even if Republicans win back the state House in November, they still would face a Democratic-led Senate and Democratic governor for at least the next two years.

“There are certain issues in which it is nearly impossible to get bipartisan agreement, such as various labor laws, pay laws, things like that,” Lindstrom said.

“Republicans are going to be sticking and firm on one side, and the Democrats are going to stick and firm on another side. That is just how it is.”

How soon could a legislative change take place?

Both Democrats and Republicans, the latter more aggressively, have begun pushing for lawmakers to return to Lansing in the immediate aftermath of the court’s decision.

State Rep. Mike Harris, a Waterford Republican, in a statement outright called for restoration of tipped wages to “provide stability to restaurant workers.”

And chamber colleague Rep. Noah Arbit, D-West Bloomfield, posted to social media not long after the decision that he looked forward to working “on a fix that will not leave our beloved community restaurants on a cliff-edge this winter.”

Meanwhile, Senate Minority Leader Aric Nesbitt called the ruling “misguided,” writing on X — the platform formerly known as Twitter — that the Legislature “needs to act now to prevent catastrophic damage to the livelihoods of the workers in an industry that barely survived the mandated COVID lockdowns.”

Whatever changes may come, Senate Majority Leader Winnie Brinks indicated it would not first be without “our legal team … reviewing the Supreme Court’s decision over the following days.”

“Here’s what I know to be true: The Legislature has a responsibility to uphold the will of the people,” the Grand Rapids Democrat said in a statement, adding that the ruling “marks a new chapter where legislators and residents alike will have a clear understanding of the citizen initiative process.”

Have other states made this change to tipped wages?

Michigan becomes the eighth state to end the tip credit, reverting to a single minimum wage, according to The National Employment Law Project, a non-partisan, not-for-profit labor advocacy organization.

The most recent state to make a similar change is Minnesota, which phased out the tip credit in 1984.

Voters in Arizona will face a similar choice in November. The Republican-controlled legislature there put on the ballot a proposed constitutional amendment to lower the minimum wage for tipped workers.

This article is being republished through a syndication agreement with Bridge Michigan. Bridge Michigan is Michigan’s largest nonprofit news service and one of the nation’s leading and largest nonprofit civic news providers. Their coverage is nonpartisan, fact-based, and data-driven. Find them online at https://www.bridgemi.com/.