LEO Revises ESTA FAQs Regarding Exemptions from “Employee” and Out-of-State Work

Michigan’s Earned Sick Time Act (the “ESTA”) took effect on February 21, 2025. In response to incoming questions regarding ESTA, Michigan’s Department of Labor and Economic Opportunity (“LEO”) occasionally updates the Frequently Asked Questions (“FAQ”) document on its ESTA website.  As LEO is the agency charged with enforcing the ESTA, its FAQ document can provide valuable information to employers making decisions regarding ESTA compliance.

LEO issued another update to its FAQ document on July 22, 2025.  The July 22 update includes the following new answers to two questions, specifically, its FAQs regarding exemptions to the definition of “employee” and regarding how the ESTA applies to out-of-state work and out-of-state employees.

Regarding exemptions to the ESTA’s definition of “employee,” the following FAQ was revised on July 22:

What employees are exempt from the Act?

Language added July 22: “Volunteers under certain circumstances are generally not considered employees (see 29 C.F.R. §553.100 (2025)).”

This new language cites to the federal Fair Labor Standards Act (“FLSA”) regulations that define “volunteers” as workers who only receive “reimbursement for expenses, reasonable benefits, and nominal fees” for their service to an employer. Pursuant to those regulations, specifically 29 C.F.R. §553.100, payments to volunteers are considered “nominal fees” if they are not a substitute for compensation and are not tied to volunteers’ productivity. The Department of Labor, which issues FLSA regulations, issued opinion letters in 2006 and 2008, stating that nominal fees cannot amount to more than 20% of what an employer would pay a full-time employee for the same service.

Parsing between the newly-added language in LEO’s FAQ addressing volunteers and the cited FLSA regulations’ definition of “volunteer,” municipalities should be aware that they may be able to exempt volunteer firefighters from the ESTA’s definition of an “employee” if the firefighters only receive a nominal fee for responding to calls.  Volunteer/paid-on-call firefighters who are paid an hourly rate for time spent on calls are not, however, likely to fall within this exemption as that type of compensation is considered tied to the firefighters’ productivity.  Firefighters paid hourly may, however, be excluded from the ESTA’s definition of “employee” based on a different exemption, depending on the municipalities’ expectations and policies related to their position.

Regarding out-of-state work and out-of-state employees, exemptions, the following FAQ was revised on July 22:

How does the ESTA apply to work performed outside the State of Michigan, or to employers located outside the State of Michigan?

Language added July 22:

“The ESTA applies to work performed by employees who are physically located in Michigan, regardless of the employer location.

. . .

The ESTA applies to work performed by employees whose employment is based in Michigan that are sent out of state by their employer to work in another location.

. . .

The ESTA may not apply to an employee traveling into Michigan for an employer when both are generally based outside of Michigan.   An out of state employee coming into Michigan would not be covered unless the employee earned 50% or more of their compensation for time spent in Michigan.

. . .

The ESTA applies to an employee accepting a Michigan based job regardless of the employee’s residency.”

The language added by LEO under its FAQ related to out-of-state work amends LEO’s previous answer, which stated that employees would not accrue earned sick time for hours spent working in another state. The new out-of-state work language is far broader, allowing employees located out-of-state but employed by Michigan entities, as well as employees based more than 50% of the time in Michigan but who are employed by out-of-state entities, to accrue paid sick leave under the ESTA.

It is important to note that LEO’s FAQ page only expresses the department’s opinion, it is not considered an administrative regulation and may not be pointed to as law.  As mentioned previously, however, the answers provided in the FAQ document may be used when making compliance decisions and could also be used as support when defending a claim filed with LEO regarding an employer’s ESTA compliance. Employers with possible volunteer workers or employees who may be assigned to work in another state should be aware of these new updates. If you have questions about the application of these updates, please contact one of our Labor and Employment attorneys.