Top 5 HR Mistakes Small Businesses Make in Michigan (and How to Avoid Them)

Top 5 HR Mistakes Small Businesses Make in Michigan (and How to Avoid Them)

Running a small business in Michigan is rewarding, but managing employees also comes with responsibilities that can’t be ignored. HR mistakes can lead to compliance violations, high turnover, and unnecessary costs — all of which take focus away from growth.

Here are the top 5 HR mistakes small businesses in Michigan make — and how you can avoid them.

1. Misclassifying Employees as Independent Contractors

Many small businesses mistakenly treat workers as 1099 contractors when they should be W2 employees. While this might seem flexible, it can create serious tax liabilities and legal risks if the worker is effectively functioning as an employee.

✅ How to Avoid It:

• Review IRS and Michigan Department of Labor guidelines.

• If you control when, where, and how the person works, they’re most likely an employee.

• Keep documentation of worker classifications and revisit them annually.

2. Not Complying with Michigan's Earn Sick Time Act (ESTA)

Michigan’s Earned Sick Time Act (ESTA), became effective February 21, 2025, and it requires employers to provide paid sick leave that employees can use for their own health needs or to care for family members. The law also prohibits retaliation against employees for using their earned sick time.

✅ How to Avoid It:

• Provide and Track Sick Time Accurately – Ensure employees receive the required sick leave (either accrued or front-loaded) and maintain reliable records of hours and usage.

• Post Required Notices and Communicate Policies – Display the official ESTA workplace poster and give employees written notice of their rights within the mandated time frame.

• Prohibit Retaliation – Train managers and supervisors to avoid adverse actions against employees for requesting or using earned sick time.

3. Skipping Required Workplace Posters

Federal and state law requires businesses to post certain notices (minimum wage, anti-discrimination, OSHA, etc.) in a visible area. Not posting them may result in fines — and signals to employees that compliance isn’t a priority.

✅ How to Avoid It:

• Order free posters directly from the U.S. Department of Labor and Michigan government sites.

• Place them in a common area (breakroom or near time clocks).

• Set an annual reminder to update them.

4. Operating Without an Employee Handbook

Many small businesses operate “informally” and avoid handbooks, but this creates inconsistency and confusion. Without written policies, employers risk disputes and lack protection if issues arise.

✅ How to Avoid It:

• Develop a basic handbook covering attendance, PTO, harassment, safety, and conduct.

• Have every employee sign an acknowledgment form.

• Update annually to reflect new Michigan and federal laws.

5. Overlooking Employee Engagement and Retention

Focusing only on compliance is a mistake — culture and engagement directly impact turnover and productivity. Ignoring this can lead to high recruitment costs and morale issues.

✅ How to Avoid It:

• Recognize employees for their contributions.

• Offer growth opportunities, even in small teams.

• Check in regularly to gather feedback and build trust.

✅ The Bottom Line

Avoiding these HR mistakes will not only keep your Michigan business compliant, but also help you attract, engage, and retain great talent.