Legal Considerations for Offering Employee Benefits in Michigan

For small business owners in Northern Michigan, the decision to offer employee benefits isn’t just about staying competitive in the labor market — it’s also about understanding a dense network of legal obligations that touch on both federal and state law. Employee benefits can be a powerful recruitment and retention tool, but if not managed carefully, they can also be a source of compliance headaches and legal exposure.

At True North Legal Group, we regularly counsel businesses across Northern Michigan on structuring benefit plans that are both attractive and legally sound. This guide walks through the key legal considerations every employer should keep in mind, from ERISA and ACA requirements to state-level mandates and optional benefits that can make your business stand out.

The Legal Framework: Navigating Federal and State Regulations

Michigan employers operate under a dual system of federal and state laws when it comes to employee benefits. While federal statutes like the Employee Retirement Income Security Act (ERISA) and the Affordable Care Act (ACA) set baseline rules, Michigan law often layers on additional requirements — or, in some cases, grants employers more discretion.

Unlike some states, Michigan does not mandate that private employers offer retirement benefits. However, this flexibility doesn’t mean employers are free from oversight. For instance, ERISA still applies to any employer-provided retirement plan, requiring strict fiduciary standards, participant disclosures, and timely reporting. Similarly, while health insurance is not required for businesses with fewer than 50 full-time employees, those who do provide it must comply with both federal ACA requirements and any relevant state insurance regulations.

When state and federal laws overlap, Michigan follows a general rule of applying the law that affords greater protection to the employee. This means that even if your business complies with federal law, you could still be in violation of state-level mandates if you aren’t careful.

ERISA and Fiduciary Responsibilities

If your business offers retirement plans or health benefits, ERISA compliance is critical. ERISA governs how benefit plans are managed, who has authority over them, and how employees are informed of their rights and responsibilities.

Fiduciary responsibilities under ERISA require that employers act in the best interests of plan participants, manage assets prudently, and avoid conflicts of interest. Violations — even if unintentional — can result in steep penalties. For example, failing to provide a timely Summary Plan Description (SPD) or not adopting required plan amendments can trigger Department of Labor investigations or lawsuits by plan participants.

Moreover, businesses must ensure that those who handle benefit funds are bonded under an ERISA fidelity bond. These bonds are not merely a formality — they are a legal requirement designed to protect plan assets from fraud or dishonesty. Many employers overlook this step, exposing themselves to liability that could otherwise be mitigated with proper bonding and compliance procedures.

State-Mandated Benefits in Michigan

One of the most misunderstood aspects of benefits compliance in Michigan is which benefits are actually required by law. While many benefits are optional, a few are not.

• Workers' Compensation: Nearly all Michigan employers are required to carry workers’ compensation insurance, whether through a private carrier or an approved self-insurance program. This covers medical expenses, lost wages, vocational rehabilitation, and, when necessary, death benefits for dependents.
• Unemployment Insurance: Employers must register with the Michigan Unemployment Insurance Agency and pay into the state’s unemployment insurance fund. Contribution rates vary depending on industry, payroll, and claims history, and proper reporting is key to avoiding penalties.
• Earned Sick Time: Under the Earned Sick Time Act, covered employers must allow employees to accrue and use paid sick leave. The amount required depends on the size of the business and covers personal health needs, care for family members, and certain public health or domestic violence-related circumstances.

Understanding which benefits fall into the “mandatory” category can help employers prioritize compliance efforts and avoid costly oversights.

ACA Compliance: Health Insurance and the Employer Mandate

Health insurance obligations under the ACA largely depend on your business’s size. If your business has 50 or more full-time employees (or the equivalent in part-time hours), you're subject to the ACA’s employer mandate — often referred to as the “pay or play” rule. Compliance boils down to three key responsibilities:

1. Determine Full-Time Employee Status: Under the ACA, a full-time employee is anyone working an average of 30 or more hours per week. Businesses must choose a tracking method — either the monthly measurement method or the look-back method — and apply it consistently.
2. Offer Minimum Essential Coverage: Coverage must meet affordability and minimum value standards. If your health plan fails on either front, your business may be subject to penalties even if you technically offer insurance.
3. Avoid Employer Shared Responsibility Penalties: Two primary penalties apply — one for failing to offer coverage to 95% of full-time employees (Section 4980H(a)), and another for offering coverage that is unaffordable or inadequate (Section 4980H(b)).

Employers with fewer than 50 full-time employees are exempt from the mandate but may still benefit from offering coverage, especially if they qualify for small business tax credits. Regardless of your size, understanding these steps is essential for avoiding unnecessary liability.

Optional Benefits and Best Practices for Michigan Employers

Many of the benefits that make a workplace attractive—paid vacation, 401(k) plans, flexible spending accounts—are not required by law but can still offer legal and strategic advantages.

Take retirement benefits, for example. While you aren’t required to offer a 401(k) or SIMPLE IRA plan, doing so may improve retention and enhance employee morale. These plans must comply with ERISA and related IRS rules, including nondiscrimination requirements, contribution limits, and proper plan administration. Tax treatment of contributions and distributions is generally aligned with federal law, but Michigan employers should consider local tax implications when designing their plans.

Paid time off is another area where Michigan law allows for employer discretion — with one exception. Under the Earned Sick Time Act, paid sick leave is mandatory for many employers. Beyond that, offering vacation or personal leave is entirely up to the employer, but it’s important to document these policies clearly and apply them consistently to avoid allegations of discrimination or wage theft. Missteps here can trigger claims under both the Fair Labor Standards Act (FLSA) and Michigan’s Payment of Wages and Fringe Benefits Act.

Documentation, Compliance, and Avoiding Legal Pitfalls

Good documentation is your first line of defense against legal claims. Every benefit program should be memorialized in writing, either in an employee handbook or a standalone policy document. These materials should outline eligibility, accrual rates, enrollment windows, and how benefits interact with other policies (such as FMLA or ADA accommodations).

Federal law requires specific notices and disclosures for certain benefit plans. Under ERISA, for example, employers must distribute summary plan descriptions, annual reports, and other documents on a regular basis. Michigan law adds further requirements, especially in areas such as workers’ compensation and payroll deduction disclosures.

Recordkeeping is also essential. Employers should retain documentation related to benefit eligibility, plan participation, payroll deductions, and employee communications. These records not only support compliance efforts but are often required during audits or disputes.

Common pitfalls we see include failure to provide COBRA notices when employees lose health coverage, inconsistent application of paid time off policies, and payroll deductions made without proper written authorization. Each of these can expose a business to penalties, lawsuits, or regulatory intervention.

Strategic Planning and Competitive Positioning

Offering benefits is not just a legal requirement—it’s a strategic decision that impacts your business’s financial health and competitive standing. Small businesses in Northern Michigan often face challenges competing with larger employers or companies based in urban areas. Thoughtfully designed benefits can level the playing field.

Cost-effective benefit strategies include offering high-deductible health plans with health savings accounts (HSAs), implementing wellness programs, or using flexible benefit plans that give employees choices without increasing costs. Some employers even offer nontraditional perks, such as remote work stipends, pet insurance, or education reimbursement—options that, while not required, can differentiate your business in a tight labor market.

Partner with a Legal Team Who Understands Your Business

At True North Legal Group, we understand the unique challenges facing Northern Michigan employers. We know the pressures small businesses face and how complicated benefits law can become. Our legal membership services are designed to simplify that complexity and help you feel confident that your benefit plans are both compliant and competitive.

Whether you need help drafting policies, evaluating a new benefit offering, or responding to a government inquiry, our team is ready to provide tailored, proactive legal support. We don't just point out the problems — we help you solve them in a way that aligns with your business goals.

Let’s talk about how True North Legal Group can help your business navigate employee benefits law. Contact us today to learn more about our legal membership services and what they can do for your company.