Michigan payroll laws 2025: Updates, rules, resources, and employer tips

Michigan’s payroll laws set the rules for how employers must pay their workers. These state-specific regulations cover important areas like overtime, minimum wage, and how often employees receive their pay. In many cases, Michigan’s requirements go beyond what federal law mandates. To stay compliant and avoid costly fines, employers need to keep up with these rules and make sure employees are paid fairly and on time.

This 2025 guide outlines key Michigan payroll laws, where they differ from federal requirements, and the taxes and employer obligations you need to know. It also highlights tips, tools, and payroll services to help you stay compliant.

What are payroll laws?

Payroll laws are regulations that govern how employers compensate employees. They include rules about wages, tax withholdings, overtime pay, recordkeeping, and employee classification at both federal and state levels.

Why are payroll laws important?

Payroll laws help protect workers’ rights and ensure that businesses meet their legal responsibilities. Following these laws reduces the risk of fines, lawsuits, and payroll errors that can affect employee trust and company operations.

What do payroll laws cover?

Payroll laws outline how employees must be paid, how taxes are withheld and reported, and what rights and responsibilities both parties have. In Michigan, this includes:

• Ensuring employees are paid fairly and on time for all hours worked.
• Setting clear rules for wages, overtime, deductions, and benefits.
• Requiring accurate recordkeeping to support compliance and resolve disputes.
• Enforcing tax obligations at both the federal and state levels.

When businesses follow these laws, they avoid penalties and build a stronger, more compliant workplace.

Who must follow Michigan payroll laws?

Whether you run a small business, operate a growing company, or hire someone to work in your home, Michigan payroll laws apply as soon as you begin paying employees. These laws cover all types of employers, no matter the business size or industry.

Here’s who’s required to comply:

• Any business with one or more employees working in Michigan, including nonprofits and out-of-state companies with Michigan-based staff.
• Pays $1,000 or more in total wages to employees during a calendar year.
• Has at least one employee working during 20 or more different weeks in a calendar year.
• Takes over all or part of an existing business located in Michigan.
• Pays $1,000 or more in cash wages for household or domestic work during a calendar year.
• Pays $20,000 or more in cash wages for agricultural work in a calendar year, OR employs 10 or more agricultural workers for at least 20 different weeks in the current or prior year.
• Chooses to participate in coverage under the Michigan Employment Security Act.
• Is required to pay federal unemployment taxes under federal law.

In short, if you have employees working in Michigan, you must follow the state’s payroll rules—including wage standards, tax withholdings, and reporting requirements.

New payroll laws to know in 2025

The following are some of the key 2025 updates to Michigan payroll laws:

• Minimum wage increase: In 2025, Michigan’s minimum wage rose in two stages. It first increased to $10.56 per hour on January 1, then went up again to $12.48 per hour on February 21, following scheduled annual adjustments under the Improved Workforce Opportunity Wage Act.
• Tipped employee wage update: The minimum wage for tipped workers increased to $4.74 per hour, with employers required to ensure that tips make up the difference to meet the full minimum wage.
• Exempt employee salary threshold: For salaried exempt employees, the federal minimum salary threshold is expected to rise under pending Department of Labor rules, and Michigan employers must comply with the higher standard once it is finalized.

Federal payroll laws every employer should know

While payroll laws vary by state, federal payroll laws set the baseline that all employers across the U.S.—including those in Michigan—must follow. These laws regulate how wages are paid, how taxes are withheld, and what benefits employers must offer in certain situations. Here's a look at the key federal regulations that impact payroll:

Fair Labor Standards Act (FLSA)

The FLSA establishes federal standards for minimum wage, overtime pay, recordkeeping, and child labor. It applies to most full-time and part-time workers in the private sector and in federal, state, and local governments. These are some of the payroll laws that fall under the FLSA.

• Federal minimum wage: As of 2025, the federal minimum wage is $7.25 per hour.
• Employers can pay tipped employees less than the full minimum wage — as long as the employee earns at least $30 per month in tips and their total pay (wages plus tips) adds up to at least the federal minimum wage of $7.25 per hour.
• Overtime pay: Nonexempt employees must be paid 1.5 times their regular rate for hours over 40 that they worked in a week.
• Recordkeeping: The FLSA requires employers to keep accurate, accessible records for all nonexempt employees. This includes basic information like name, address, Social Security number, occupation, hours worked, wages paid, and pay rates. Employers using the tip credit must also maintain weekly records of reported tips and the amount of credit claimed.
• Keep for at least 3 years: Payroll records, collective bargaining agreements, and sales or purchase records.
• Keep for at least 2 years: Timecards, wage rate tables, schedules, and records of wage changes.

Internal Revenue Service (IRS) Regulations

Employers are required to comply with IRS rules pertaining to payroll taxes. Taxes must be calculated, withheld, and submitted accurately and on time. Employers need to:

• Withhold federal income tax from employee wages based on Form W-4 information and current IRS federal withholding tax tables.
• Withhold and match Social Security and Medicare taxes (FICA) from employee wages. For 2025:
• Social Security tax: 6.2% each for employer and employee, up to a wage base limit of $176,100.
• Medicare tax: 1.45% each for employer and employee, with no wage base limit.
• Pay Federal Unemployment Tax Act (FUTA) taxes:
• Employers must pay a federal unemployment tax of 6.0% on the first $7,000 of each employee’s annual wages.
• If all state unemployment taxes are paid on time and the employer’s state is not designated as a credit reduction state, the FUTA tax may be reduced by a credit of up to 5.4%, resulting in an effective rate of 0.6%.
• Only employers pay FUTA; it is not withheld from employee wages.
• FUTA taxes are reported annually using IRS Form 940.

Affordable Care Act (ACA)

The Affordable Care Act (ACA) requires employers with 50+ full-time employees to offer affordable health insurance and report coverage to the IRS.

• They must offer affordable, minimum-value coverage to at least 95% of full-time employees and dependents.
• "Affordable" means the employee's share of self-only coverage doesn’t exceed a set income-based percentage.
• Employers must file Forms 1094-C and 1095-C with the IRS annually to report coverage details.
• Visit the IRS website to see if the ACA applies to your business.

Smaller businesses with fewer than 50 full-time employees may still be subject to certain ACA requirements depending on their specific circumstances. Check the IRS website for additional information on ACA tax provisions for small employers.

Key Michigan payroll laws

While federal payroll laws provide the basic framework, Michigan has its own state-specific regulations that employers must follow. If you have employees in Michigan, it’s important to understand how these state laws differ from federal rules to ensure full compliance.

Minimum wage in Michigan for 2025

As of January 1, 2025, Michigan’s minimum wage was $10.56 per hour for most employees. This rate increased again to $12.48 per hour on February 21, 2025. Separate wage rules may apply to tipped employees.

Michigan overtime rules

Employers must follow Michigan’s overtime rules when paying their employees. These rules apply to most nonexempt workers in the state.

• Standard overtime pay: Employees must be paid 1.5 times their regular rate of pay for:
• Hours over 40 worked in a single workweek

Exempt workers include professionals, administrators, executives, elected officials, political appointees, agricultural workers, certain domestic service employees, and employees at seasonal amusement or recreational businesses that operate fewer than seven months per year.

• Double-time pay: Michigan law does not require double-time pay for any hours worked, regardless of shift length or number of consecutive workdays.

Pay frequency

Michigan’s Payment of Wages and Fringe Benefits Act (Act 390 of 1978, MCL 408.472) requires employers to establish regular paydays—weekly, biweekly, semi-monthly, or monthly—with clear advance notice to employees.

• By the 1st of the following month for the first half of a semi‑monthly period.
• Within 14 days after a weekly or biweekly pay period ends.
• By the 15th day following a monthly pay period.

Semi-monthly pay periods

• Wages earned from the 1st to the 15th of a month must be paid by the 1st of the next month.
• Wages earned from the 16th to month-end must be paid by the 15th of the following month.

Other pay periods (weekly, biweekly, etc.)

• Employers using weekly or biweekly pay schedules must pay employees no later than 14 days after the end of the pay period in which the wages were earned.

Overtime pay

• Overtime (time and a half after 40 hours/week) must be paid by the next regular payday following the period when it was earned.

Exception for exempt employees

• Salaried employees in executive, administrative, and professional roles (per FLSA rules and regulations) are permitted to be paid once per month, provided the full monthly salary is paid no later than 15 days after the end of the pay period.

Final paycheck laws in Michigan

Michigan requires that final wages—including earned wages and any fringe benefits due—be paid promptly based on how employment ends, as outlined in Public Act 390 of 1978 (MCL 408.475).

• Termination (fired or laid off): All earned wages and due fringe benefits must be paid on the next regularly scheduled payday.
• Voluntary resignation: All earned wages and fringe benefits must be paid on the next regularly scheduled payday after resignation, unless the employee is hand-harvesting crops.
• With 72+ hours’ notice: Michigan law does not provide a separate timeline for notice-based resignations: Final pay is due on the next regularly scheduled payday, regardless of notice.
• Accrued vacation (PTO payout): Michigan treats vacation pay as a fringe benefit, not earned wages.
• Additional considerations: Employers cannot make deductions for disciplinary reasons without written consent.
• Sick leave: Michigan law does not require payout of accrued sick leave upon termination.
• Severance pay: There is no statutory requirement in Michigan to provide severance pay.
• Deductions: Employers may only deduct from final wages if required by law (e.g., taxes) or if the employee has provided written consent without coercion (e.g., for benefit contributions).

For more detailed information, refer to the Michigan Department of Labor and Economic Opportunity’s resources on final wage payments and employer obligations.

Michigan paid sick leave

Paid Sick Leave (ESTA) is a permanent requirement in Michigan state law, effective from February 21, 2025. Most employers must provide paid sick time for employees to care for themselves or others.

• Qualification criteria: Employees begin accruing leave from their hire date or the Act’s effective date, whichever is later. Employers may impose a 120‑day waiting period before leave can be used (not required if time is front‑loaded).
• Amount of leave:
• Small companies (10 or fewer employees): up to 40 hours paid per year.
• Other employers: up to 72 hours paid per year.
• How sick leave is accrued:
• Accrual method: Employees earn 1 hour of leave for every 30 hours worked. Unused time carries over annually up to 40 or 72 hours, based on company size.
• Front-loading method: Employers can grant 40 hours (small businesses) or 72 hours (others) at the start of each benefit year. If these are front‑loaded, no accrual tracking, carryover, or payout is required.
• Permitted use: Leave may be used for the employee's or a family member’s:
• Physical or mental health condition, medical diagnosis, care, or treatment.
• Preventive care.
• Issues arising from domestic violence or sexual assault (including relocation, legal services, or court proceedings).
• Participation in school or childcare-related meetings concerning a child’s health or disability.
• Local laws: Michigan preempts local sick leave ordinances. Statewide ESTA rules apply uniformly — local variations are not permitted.

For more information, consult official resources from the Michigan Department of Labor and Economic Opportunity (LEO) on the Earned Sick Time Act.

State-specific recordkeeping requirements

Public Act 390 of 1978 (MCL 408.479) requires Michigan employers to maintain comprehensive payroll records for each employee, including name, address, occupation, pay rate, total hours worked, wages paid per period, itemized deductions, and fringe benefits (group fringe benefit listings are allowed if there are 10+ employees).

Those records must be preserved for at least three years and made available for inspection upon request by the Michigan Department of Labor and Economic Opportunity or its authorized representatives.

Employers must also provide employees with a statement at the time of each wage payment, including hours worked, gross wages, the applicable pay period, and deductions, plus fringe benefit details if needed.

Tip credit rules

Under Michigan’s Improved Workforce Opportunity Wage Act, employers may use a tip credit for workers in roles that customarily receive tips—provided the employee earns at least the full state minimum wage ($12.48 as of Feb 21, 2025)—and must be paid a direct wage of no less than 38% of that rate ($4.74).

Employers must notify tipped employees of tip credit provisions in writing and keep signed weekly records of tips received and tip credits claimed. If tips plus direct wages do not reach the minimum wage, the employer must make up the shortfall.

Tip pooling is permissible but only among employees who regularly receive tips when a credit is claimed. Managers or supervisors may not share in pooled tips, and employers may not retain any tips.

Michigan payroll taxes

In Michigan, employers must comply with federal tax requirements and administer the following primary state payroll taxes:

Unemployment Insurance (UI)

Unemployment insurance provides temporary financial assistance to eligible unemployed workers. The program is administered by the Michigan Unemployment Insurance Agency (UIA) and funded solely by employer contributions.

State Income Tax (SIT)

Michigan has a flat state income tax rate, which employers must withhold from employee wages and remit to the Michigan Department of Treasury. This tax supports public services, including education, healthcare, and infrastructure.

Michigan local payroll taxes

Michigan has a flat state income tax, but 24 cities are authorized to impose their own local income taxes. These city taxes apply to employees who live or work within the taxing jurisdiction. Employers must withhold and remit local income taxes for affected employees based on city-specific rates and rules.

To find out if local taxes may impact you:

• Contact your city or county government for the most current information on local payroll tax rates and rules.
• Get guidance from a Michigan tax expert to ensure local payroll compliance.

Michigan payroll compliance requirements

While all employers in Michigan must follow federal payroll laws, the state also imposes its own responsibilities to ensure accurate withholding, wage payments, and tax reporting.

Register as an employer

Michigan employers with at least one employee subject to federal income tax withholding must register with the Michigan Department of Treasury for state withholding tax and the Unemployment Insurance Agency (UIA) for unemployment insurance. Registration is required online or via Form 518 or the combined eRegistration system.

Withholding and remitting taxes

Employers must withhold Michigan’s flat 4.25% state income tax from employee wages and remit it by the 20th of the following month for monthly filers, or the 20th of the month after each quarter for quarterly filers; annual filers submit by February 28.

Employers with employees living or working in one of Michigan’s 24 local income-tax cities must also withhold and remit local income tax at applicable city rates.

Unemployment Insurance (UI) contributions

Employers must contribute UI taxes to the UIA based on taxable wages (up to $9,500 annually per employee). Rates vary from about 0.06% to 10.3% depending on employer experience. New employers generally start at around 2.7% and adjust over time as UI claims occur.

Recordkeeping and wage statements

Under Michigan law, employers must keep employee payroll records—including hours worked, gross and net wages, deductions, and fringe benefits—for at least three years. Wage statements (pay stubs) must accompany each payment and include essential details such as hours, pay period, and deductions.

Timely wage payments and penalties

Employers must comply with Michigan’s minimum pay frequency rules and cannot withhold wages for disciplinary reasons without written consent.

Non-compliance—including failing to register, withhold, or timely remit taxes or maintain records—may result in fines, interest, and enforcement actions from state agencies such as the Department of Treasury or UIA. Always stay current with state agencies’ guidance and any applicable local rules in cities where you operate.

Can an employer withhold a paycheck for any reason?

No. Employers cannot withhold a paycheck for any reason not allowed by law. They are legally required to pay all earned wages on time. Deductions are only permitted if:

• Required by law (e.g., taxes, wage garnishments)
• Authorized in writing by the employee (e.g., benefits)
• Covered under a collective bargaining agreement

Employers may not withhold wages as punishment or for issues like property damage. Unlawful withholding can lead to legal action by the employee.

Consequences of non-compliance

In addition to the specific regulatory actions outlined above, failing to follow Michigan’s payroll rules can lead to broader consequences for your business:

Financial penalties

Employers who miss tax deadlines or fail to remit withheld taxes may face penalties, interest, and fees from the Michigan Department of Treasury or UIA. These costs can add up quickly and significantly impact cash flow.

Employee claims and lawsuits

Employees may file wage complaints or lawsuits if they believe their pay was withheld, miscalculated, or delayed. This can result in back pay awards, legal fees, and potential civil damages.

Audits and investigations

Non-compliance with payroll laws can trigger audits by state agencies such as the UIA or the Treasury. These audits may uncover additional violations, leading to more penalties and increased scrutiny.

Reputation damage

Wage violations or tax issues can damage your company’s reputation with employees, customers, and partners. Negative publicity may also reduce trust in your business within the local community.

Operational setbacks

Resolving payroll compliance issues often requires time, legal support, and administrative resources. This can divert attention from core operations and delay business growth or hiring plans.

Common payroll mistakes (and how to avoid them)

Payroll mistakes can cost businesses more than just money—they can lead to fines, compliance violations, and damaged employee trust. Below are some of the most frequent errors companies make, along with ways to prevent them.

Misclassifying employees

In Michigan, misclassifying a worker — like labeling an employee as an independent contractor — can lead to serious trouble. If you issue both a W-2 and a 1099 to the same person, you’re more likely to raise red flags and attract audits, fines, or enforcement actions from state or federal agencies.

How to avoid this:

• Use IRS and Michigan criteria to distinguish contractors from employees
• Use QuickBooks payroll features to categorize workers and file the correct forms.
• Audit classifications regularly to stay compliant.

Underpaying employees

Not paying employees correctly in Michigan can result in major financial fallout. In 2024, the U.S. Department of Labor’s Wage and Hour Division recovered over $273 million in back wages and damages for nearly 152,000 workers across the country, showing just how costly payroll mistakes can be for employers.

How to avoid this:

• Stay current on wage and hour laws.
• Run regular payroll audits.
• Use automated payroll and time-tracking tools, like a time card calculator.
• Train staff on compliance basics.
• Keep accurate, organized records.

Miscalculating overtime

Overtime mistakes are a top source of wage claims. Errors like not separating regular from overtime hours or applying the wrong rate can add up fast.

How to avoid this:

• Make sure your payroll system automatically and correctly tracks and calculates overtime.
• Review exempt vs. nonexempt classifications.
• Train staff on both federal and Michigan overtime rules.
• Use timesheet templates to help employees accurately track their hours and overtime.

Late wage payments

Paying employees late damages trust and can lead to penalties.

How to avoid this:

• Automate payroll with scheduled direct deposits.
• Monitor cash flow regularly.
• Use payroll calendar templates, alerts, and reminders to track due dates and meet deadlines.

Poor recordkeeping

Incomplete or inaccurate records can derail compliance, lead to fines, and make it hard to defend against claims.

How to avoid this:

• Keep detailed records of hours, wages, classifications, and deductions.
• Use secure, digital payroll software to track and store information.
• Back up your data regularly.

Timesheet errors

According to QuickBooks research, U.S. employers report needing to fix errors on 80% of employee-submitted timesheets. One of the main causes? Employees forget to clock in or out and later struggle to recall their actual hours worked.

How to avoid this:

• Employ digital time-tracking software and tools with real-time clock-in/clock-out features.
• Enable automated reminders or mobile alerts to prompt employees throughout the day.
• Train staff on proper timekeeping procedures and the importance of accurate reporting.
• Review timesheets regularly before processing payroll to catch discrepancies early.

Incorrect tax withholding

Failing to withhold the correct amount of federal, state, or local taxes can result in penalties.

How to avoid it:

• Use payroll software that automatically calculates and withholds the correct taxes for each jurisdiction.
• Stay up to date with IRS and state tax rate changes each year.
• Review employee W-4 forms regularly, and update them as needed.
• Reconcile payroll tax filings with payment records to catch discrepancies early.
• Work with a payroll provider that offers tax filing and accuracy guarantees.
• Accurately estimate taxes and net pay by using a Michigan paycheck calculator before processing payroll.
• Consult a tax professional in Michigan who understands the state’s payroll landscape to ensure you're meeting all local obligations and staying compliant.

Payroll resources for Michigan employers

Employers in Michigan must comply with both state and federal requirements, which involve coordination with several government agencies. Here's a summary of the most relevant ones:

• Michigan Department of Labor and Economic Opportunity (LEO): Oversees wage and hour laws, unemployment insurance, paid sick leave compliance, and general labor standards for Michigan employers.
• Michigan Department of Treasury: Handles state income tax withholding, registration for business taxes, and employer filing requirements.
• Michigan Unemployment Insurance Agency (UIA): Administers unemployment insurance contributions, claims, and employer account management through the MiWAM portal.
• Internal Revenue Service (IRS): Handles federal payroll tax responsibilities, including federal income tax withholding, Social Security, Medicare, and Federal Unemployment Tax Act (FUTA) compliance.
• U.S. Department of Labor (DOL): Enforces federal labor laws under the Fair Labor Standards Act (FLSA), including minimum wage, overtime, and recordkeeping rules.

Simplify payroll law compliance for your Michigan business

Michigan’s payroll laws are complex, and even small mistakes can trigger costly penalties. QuickBooks Payroll helps you stay accurate and compliant by automatically calculating, filing, and paying your federal and state payroll taxes—backed by a 100% accuracy guarantee and tax penalty protection.** On-the-go time tracking with QuickBooks Time keeps employee hours organized and synced. Plus, as your business grows, QuickBooks scales with you, offering the right tools to support faster, more seamless payroll.