Michigan Payment of Wages and Fringe Benefits Act: What Employers Owe
How the Act treats vacation, sick time, bonuses and payroll deductions, and why written benefit policies matter.
What The Act Is And Who It Covers
Act 390 of 1978 sets rules for how and when Michigan employers pay what they owe.
Act 390 Of 1978
The Payment of Wages and Fringe Benefits Act covers the payment of wages, fringe benefits and deductions from pay. It sits alongside federal wage and benefit law rather than replacing it, so a policy can satisfy one and still miss the other. Employment counsel can confirm how the two interact for your workforce. For a quick estimate, use our free paid time off liability calculator.
Every Employer Is Covered
An employer is any person or organization that employs one or more individuals, including businesses, nonprofits, schools and governments. Size does not exempt anyone, so a small office with a few employees follows the same framework as a large organization, including its written policies and pay practices.
Wages Versus Fringe Benefits
Wages are all earnings for labor or services, however calculated. Anything defined as a fringe benefit is treated separately. The classification affects when pay is due and what happens at separation, so how a benefit is labeled in your policy matters. Counsel can help you check the language.
Why Benefits Teams Care
Benefit plans, PTO policies, bonuses and payroll deductions for premiums all touch this Act. Premium deductions generally call for clear written authorization, and PTO and bonus terms should match what the handbook and plan documents say, so HR and payroll work from one version.
Part Of A Larger Picture
The Act sits beside the Earned Sick Time Act and federal rules. See our Michigan benefits compliance guide.
General Information
This page is general information, not legal advice. Employment counsel should review policies. Rules differ by employer type, policy wording and facts, so use this page to frame questions for your adviser rather than to reach a conclusion on your own. Keep a dated copy of each policy version that counsel has reviewed.
What Counts As A Fringe Benefit
The definition turns on a written contract or written policy.
Holiday Pay
Pay for holidays owed under a written contract or policy. Whether holiday pay is owed depends on what your written policy or contract promises, so state the eligibility rules, the days covered and how the pay is calculated in plain terms. Have counsel review the wording before you publish it.
Time Off For Sickness Or Injury
Paid time off for illness or injury, where the written policy provides it. If the policy offers it, the terms should say who qualifies, how time is earned and used, and what happens to unused time at separation. Vague wording is where disputes usually start.
Personal Time Or Vacation
Time off for personal reasons or vacation owed under the policy. Because the policy defines what is owed, spell out accrual, carryover limits and payout on separation consistently across the handbook and any offer letters, so managers apply it the same way, and have counsel confirm the approach.
Bonuses
Bonuses promised in a written contract or policy are fringe benefits. If a bonus is promised in writing, treat conditions such as timing and eligibility as binding terms, and word discretionary bonuses carefully before they are announced. Counsel can help you tell the two apart.
Authorized Expenses
Expenses authorized during employment fall within the definition. Reimbursement rules work best when they say what counts as authorized, how to submit it, what documentation is needed and how quickly repayment follows, so everyone shares the same expectation. Employment counsel can confirm the details.
Contributions On The Employee’s Behalf
Employer contributions made for the employee are also covered. That includes amounts the company puts toward benefits such as retirement or health plans, so make sure those contributions follow the written terms and the plan documents and are remitted on schedule. Confirm specifics with counsel.
Written Policy Is The Test
The statute ties these benefits to a written contract or written policy. An unwritten promise is a risk, so keep policies in writing and current. Review the handbook and offer letter templates once a year so what is written matches what managers actually do and promise. Counsel can check for gaps.
Paying Fringe Benefits And Final Wages
What the Act says about timing and the policy that governs.
Follow The Written Policy
An employer must pay fringe benefits to or on behalf of an employee according to the written contract or policy that sets them out. If practice drifts from the document, the gap becomes a problem, so update the policy first, then change the practice, and have counsel review the change.
Discharged Employees
Wages earned and due must be paid immediately, once the amount can be determined with due diligence. Plan the final paycheck process ahead of time, with payroll and HR agreeing on who calculates it and how quickly, so a termination does not create a timing problem. Counsel can confirm requirements.
Employees Who Resign
Wages earned and due must be paid when the amount can be determined. Confirm what final pay includes, including any earned amounts tied to written policies, and keep payroll and HR aligned on the due date before the last day arrives. Counsel can confirm timing for your situation.
Contract Workers
When the amount cannot be determined until a contract ends, the employer pays estimates during the contract and the final payment at the end. Document how the estimates are calculated and when the final payment is due, so the arrangement is clear to the worker from the start. Counsel can review the contract language.
PTO Payout
Whether accrued PTO is paid at separation depends on what the written policy says. Spell out vesting and payout rules in the policy. Choose the approach deliberately and apply it the same way for everyone, since an unclear or inconsistently applied policy is hard to defend later. Counsel can review the wording.
Bonuses
A promised bonus that has been earned under the written terms is owed. Make the conditions clear in writing. Keep records showing when conditions were met, and avoid changing the terms after the work is done. If a bonus is discretionary, say so plainly in writing.
Deductions Need Written Consent
Section 7 limits what an employer can take out of pay.
Full, Free And Written Consent
An employer may not deduct from wages without the employee’s full, free and written consent, obtained without intimidation or fear of discharge. Get the authorization on paper before the deduction begins, and keep it with the personnel or payroll record, including for benefit premium deductions. Counsel can review your forms.
Exceptions
Deductions required or expressly permitted by law, or by a collective bargaining agreement, do not need separate consent. Confirm the specific law or agreement that supports each deduction before relying on an exception, and when in doubt, obtain written consent. Counsel can help sort out which applies.
Deductions For The Employer’s Benefit
Each wage payment subject to the deduction needs its own written consent, and total deductions cannot reduce gross wages below the state minimum wage. Because consent is needed for each payment, a one-time blanket form may not be enough, so confirm your forms and process with counsel before you rely on them.
Recordkeeping
Each deduction must be documented in the employer’s records and tied to a specific employee. Keep payroll registers, authorization forms and adjustment notes in a form you can produce for the right employee on request, and retain them according to your records policy and counsel advice.
Recovering Overpayments
An employer can recover a clerical or processing overpayment within 6 months, after a written explanation at least one pay period earlier, taking no more than 15 percent of gross pay. Because the conditions are specific, route any recovery through payroll and HR together and confirm the steps with counsel first.
Benefit Premium Contributions
Employee premium contributions taken through payroll are deductions. Keep enrollment and election forms that show the employee’s written authorization. Review forms at open enrollment and whenever elections change, so the deduction amount always matches an authorization on file. Mid-year changes are the easy ones to miss.
What Happens When An Employer Gets It Wrong
The state can order payment and add penalties.
Unpaid Wages And Benefits
The department can order payment of unpaid wages and unpaid fringe benefits owed under a written contract or policy. A claim can start with a complaint from a single employee, so clean policies and records are the best protection. Employment counsel can advise if one is filed.
Annual Penalty
A 10 percent annual penalty runs from when the employer is notified of the complaint until payment. Because the penalty runs until payment, resolving a valid claim promptly limits how far it grows. Counsel can advise on how to respond to a complaint.
Exemplary Damages
For flagrant or repeated violations, the department can award up to twice the amount owed. Prompt correction of an error, once it is found, is better than leaving it in place, so audit your pay practices on a regular schedule. Counsel can advise if a problem is already known.
Costs And Civil Penalty
The department can award attorney, hearing and transcript costs and assess a civil penalty of up to 1,000 dollars. Those costs and penalties can add to the underlying amount owed, which is another reason to resolve valid claims early. Counsel can explain how they apply.
Complaint Deadlines
An employee can file a complaint with the department within 12 months of an alleged improper overpayment recovery. Other deadlines may apply, so confirm with counsel. Keep payroll and deduction records for at least as long as these windows could remain open, and follow your counsel retention guidance.
A Policy Review Checklist
What to confirm in your handbook and payroll process.
Is Each Benefit In Writing
Confirm PTO, holiday, bonus and expense policies are written down and current. If any of these live only in email or habit, write them down, date them and keep the current version where managers can find it, then have counsel review the final text.
Is Payout At Separation Clear
State whether accrued PTO is paid out, and the conditions. Name the conditions, such as notice, length of service or accrual caps, so there is no argument when an employee leaves about what was promised, and apply the same rule to everyone. Counsel can confirm the wording.
Do You Have Deduction Authorizations
Keep written authorizations for premium contributions and other deductions. Pull a sample of current enrollees and confirm an authorization is on file for each deduction and matches the amount actually withheld, then correct gaps before open enrollment ends. Counsel can advise on acceptable electronic formats.
Are Bonus Terms Clear
Spell out eligibility, timing and conditions for bonuses. Include what happens to a bonus if someone leaves before it is paid, whether it is discretionary, and who approves exceptions, so managers and payroll answer the same way. Counsel can review the language.
Does Payroll Match Policy
Check that payroll practice follows what the policy says. Sample a few pay periods and compare actual pay, PTO balances and deductions with the written policy, then fix differences promptly either in practice or in the policy. Counsel can advise on corrections.
Does Counsel Review Changes
Have employment counsel review policy changes and separation practices. Build the review into your process so changes are not announced first and checked afterward, especially for handbook updates, terminations and final pay, and keep a dated record of what counsel reviewed. Ask counsel to sign off before rollout.
What Employers Ask About The Act
Short answers to common questions.
Does the Act require us to offer PTO?
No. It governs how promised benefits are paid. If your written policy offers PTO, the policy decides what is owed.
Do we have to pay out unused PTO when someone leaves?
It depends on the written policy and contract. Say clearly in the policy whether and when accrued PTO is paid.
When must we pay a terminated employee?
Wages earned and due must be paid immediately for a discharged employee, once the amount can be determined with due diligence.
Can we deduct health premiums from pay?
With the employee’s written consent or as otherwise permitted by law. Keep election forms on file.
Can we recover a payroll overpayment?
Within limits: within 6 months, with written notice a pay period ahead, and no more than 15 percent of gross pay per period.
Does earned sick time fall under this Act?
Earned sick time is governed by its own law. See our earned sick time guide.
What are the penalties?
Unpaid amounts, a 10 percent annual penalty, possible exemplary damages of up to twice the amount, costs and a civil penalty of up to 1,000 dollars.
Who should review our policies?
Employment counsel. We help with the benefits side and can connect clients with attorneys through the firm.
Related Guides
Related reading: Michigan benefits compliance · Earned sick time · Compliance calendar · Compliance is federal
The rules in one place.
Michigan Employer Benefit Laws
Wages, sick time, civil rights and coverage mandates, in one place.
Overtime and Benefits Guide
Regular rate, cash in lieu and deductions.
Termination for Cause and Benefits
Coverage end dates, COBRA and final pay.
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
An independent employee benefits consulting firm. We look at the entire benefits program — cost, plan performance, risk and administration.
Switch to CFH. Unhappy with your broker? Your employees won’t notice. You will. →
Cookies on This Site
We use cookies to keep the site working properly and to understand how it is used. You can decline anything that is not essential. See our Privacy Policy for the detail.
- Essential — needed for the site to load and for you to move around it. These cannot be switched off.
- Analytics — tell us which pages get read, so we know what is worth writing more of.
- Advertising — set by third parties such as ad and social platforms to measure and target campaigns.