Michigan HR professionals have been navigating the complexities of the Earned Sick Time Act (ESTA) since its effective date, February 21, 2025. As the year draws to a close, a new set of administrative and compliance tasks emerges. The specific actions HR must take depends on whether your organization utilizes the accrual method or the frontloading method for providing earned sick time.

The law defines the “benefit year” as a regular and consecutive twelve-month period determined by the employer used to calculate eligible employee benefits. Whether you run your year on a calendar basis, anniversary date, or a fiscal basis, this established period dictates your year-end procedures.

Under the accrual method (where employees earn 1 hour of ESTA for every 30 hours worked), the primary year-end concern is carryover.

• Mandatory Carryover: Employers must allow employees to carry over unused accrued paid earned sick time from one year to the next.
• Carryover Caps: This required carryover is capped at 72 hours for large businesses (11 or more employees) or 40 hours for small businesses (10 or fewer employees). HR must ensure they accurately calculate and track these employee accruals.
• Usage Limits: While unused hours carry over, ESTA limits the amount employees can use in a single year to 72 or 40 hours, depending on employer size.

If the employer chose to frontload the full required amount of earned sick time (72 or 40 hours) at the start of the year, the process is less complex regarding carryover.

• No Carryover Requirement: Employers using the frontloading method are not required to allow employees to carry over any unused earned sick time from one year to the next.
• Recoupment Review: If an employee separated during the year after using more frontloaded time than they had theoretically accrued, the employer may determine the accrued amount and recoup the excess value, provided a prior written, voluntary agreement for the deduction was secured.

HR professionals should be asking several questions to prepare for the upcoming year:

Can we change our ESTA method in 2026? While the sources affirm that both frontloading and accrual are permitted, they do not explicitly forbid switching methods between benefit years. Employers must weigh the administrative simplicity of frontloading (no mandated carryover or accrual tracking) against the specific requirements of accrual.

• Do we need to pay out unused time? ESTA does not require financial reimbursement for unused earned sick time at year-end or termination. However, employers can choose to pay out accrued time annually in lieu of carrying over unused hours.
• Are records secure? Employers must retain records of hours worked and ESTA time taken for a minimum of three years.
• Are our notices updated? Ensure all required posters are conspicuously displayed, including translations if applicable.

Compliance with ESTA is mandatory for virtually all Michigan employers. A thorough year-end audit ensures adherence to these complex state mandates and positions the organization for compliance in the new benefit year.

For more information, visit ASE’s ESTA FAQs page.