How to Run Payroll in Michigan

May 18th 2026

Running payroll in Michigan involves more than simply paying employees. It requires compliance with Michigan payroll laws, accurate calculation of payroll taxes in Michigan, proper employee classification, and timely reporting.

Whether you’re a small business owner or scaling operations, understanding how to run payroll in Michigan online or manually is essential to avoid penalties and stay compliant. This guide walks you through running payroll in Michigan step by step, including Michigan payroll tax rates, payroll forms, pay laws, and employer obligations.

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Step-by-Step Guide to Running Payroll in Michigan

Follow this Michigan payroll checklist to ensure accurate and compliant payroll processing:

Step 1: Obtain an Employer Identification Number (EIN)

Before running payroll in Michigan, employers must obtain a Federal Employer Identification Number (EIN) from the IRS. Employers can apply online through the IRS website or submit Form SS-4 by mail.

An EIN is required for:

  • Filing payroll taxes
  • Reporting employee wages
  • Opening business bank accounts
  • Hiring employees legally
  • Processing employee payroll

Step 2: Register your business with Michigan payroll tax agencies

Michigan employers must register with the following state agencies before processing payroll:

These registrations help employers comply with Michigan payroll tax requirements and unemployment insurance obligations.

Step 3: Understand Michigan payroll laws and requirements

Before running payroll in Michigan, employers should understand all applicable Michigan pay laws, including minimum wage laws, overtime pay requirements, payday laws, payroll tax withholding requirements, recordkeeping obligations, and other laws affecting payroll in Michigan.

Step 4: Classify workers correctly

Accurate worker classification is critical for payroll compliance in Michigan. Employees are covered by unemployment insurance, workers’ compensation, minimum wage, and overtime protections. Independent contractors are not entitled to these benefits, and employers don’t pay unemployment taxes on their earnings.

Michigan uses the Economic Reality Test to determine whether a worker is an employee or an independent contractor. Factors considered include:

  • Whether the worker depends primarily on the employer for income
  • Whether the work performed is integral to the employer’s business
  • Whether the worker provides their own tools and equipment
  • Whether the employer controls the working relationship
  • Whether the worker operates as an independent business/contractor
  • Whether the employer assumes any liability upon terminating an at-will relationship

Even if you label someone an independent contractor, they may legally qualify as an employee. Misclassifying workers can result in audits, penalties, back taxes, and legal liabilities under the Workers’ Disability Compensation Act, the Michigan Employment Security Act, and the Workforce Opportunity Wage Act.

For more details on employee entitlements, see our guides on salaried employee rights in Michigan and hourly employee rights in Michigan.

Step 5: Collect employee payroll forms

Employers must collect required Michigan payroll tax forms and federal forms, including the W-4, I-9, and direct deposit details. Employers must also complete new hire reporting in Michigan within 20 days of hiring or rehiring an employee.

Step 6: Establish a payroll schedule and process

Establish a streamlined payroll process that suits the needs of your business. This includes selecting a payroll software or system, designating responsible individuals for payroll tasks, defining a clear payroll schedule, and selecting a payment method.

Employers must establish a consistent Michigan state pay schedule:

  • Weekly
  • Biweekly
  • Semimonthly
  • Monthly

Step 7: Collect, review, and approve timesheets

Timesheets document the hours worked by each employee during a specific pay period. Make sure that employees accurately record their work hours, including any overtime or paid time off they may have taken. A great way to streamline this process is by using a timesheet app or a time and attendance software.

Managers or supervisors should review and approve timesheets to verify their accuracy. Any discrepancies or questions about hours worked should be resolved before moving on to the next step.

Step 8: Calculate payroll and pay employees

With accurate timesheets in hand, employers can now calculate the payroll. This involves:

  • Calculating gross wages
  • Applying overtime and additional compensation like bonuses or commissions
  • Subtracting applicable deductions, including federal and state income tax, Social Security, and Medicare contributions
  • Calculating the net pay for each employee
  • Paying employees through direct deposit, paycheck, or payroll cards

Employers must also ensure compliance with Michigan minimum wage and overtime laws when calculating payroll.

Many businesses use tools to run payroll in Michigan online efficiently.

Step 9: File and pay payroll taxes in Michigan

After withholding payroll taxes and paying employees, employers must file payroll tax reports and remit payroll taxes to the appropriate state and federal agencies. It’s also important to meet all filing deadlines to avoid fines and penalties.

In Michigan, you’ll need to send a yearly tax report that shows how much money you’ve held back from your employees’ paychecks. You also have to send in tax reports more often, either every month or every three months.

Step 10: Maintain payroll records

Michigan employers are required to maintain accurate payroll records for each employee for at least three years. These records include an employee’s timesheets, pay stubs, tax forms, and other relevant documents.

Maintaining organized payroll records helps employers comply with audits, wage disputes, and tax reporting obligations.

Step 11: Complete year-end payroll tax reporting

At the end of each year, employers must prepare and distribute year-end payroll forms, including W-2 forms for employees and 1099 forms for independent contractors. These forms must generally be provided by January 31 of the following year.

Employers must also provide state W-2s by the end of February of the following year.

Running payroll in Michigan requires careful attention to tax compliance, employee classification, reporting deadlines, and payroll laws. By following this structured Michigan payroll guide, businesses can stay compliant, avoid penalties, and ensure employees are paid accurately and on time.

If you’re scaling your business, using payroll software or outsourcing to payroll companies in Michigan can further streamline the process.

Which Payroll Taxes Apply in Michigan?

Understanding payroll taxes in Michigan is key to compliance.

All Michigan employers must deal with various payroll taxes, both state and federal. Some of these need to be withheld from their employee’s paychecks, while others are the responsibility of the employer to contribute. Understanding which is very important to ensure compliance with tax laws and avoid hefty penalties for breaking Michigan labor laws.

Employer Contributions to Payroll Taxes

  • State Unemployment Tax (SUTA): Employers must pay unemployment taxes to support terminated employees. In Michigan, new businesses (two years or less) pay a 2.7% rate, except in construction, where it’s based on industry averages (usually 6.8%-8.1%). For businesses that have been around for 3-4 years, the rate will depend on their payroll and benefits paid. From year five, it’s determined by using a formula established by the State of Michigan. In essence, more benefit claims mean a higher tax rate.

Payroll Tax Withholdings From Employees’ Wages

  • Michigan State Income Tax: Michigan has a flat-rate tax of 4.25% on each employee’s gross pay.
  • Local City Taxes: In addition, some Michigan cities levy an additional income tax for residents and non-residents. The rate of the local income tax can vary per city. Keep in mind that these rates may change, so it’s best to reach out to the local city government for the most up-to-date information.
  • Workers’ Compensation: Michigan employers are required to cover workers’ compensation insurance if they have at least one employee working more than 35 hours a week for 13 weeks or more in a year. They must also have a minimum of three employees at any given time, including part-time workers. The cost of workers’ compensation is roughly 70 cents for every $100 of payroll you process.

Employers must also handle federal taxes like income tax withholding, Social Security, Medicare, and FUTA. These apply nationwide and follow IRS rules. For full details, refer to our federal guide on running payroll in the US.

Payroll Forms in Michigan

Managing Michigan payroll tax forms is essential for compliance. The key payroll forms in Michigan include:

Common federal payroll forms include W-4, W-2, 941, 940, and 1099 for reporting wages and taxes to the IRS.

Which Laws Affect Payroll in Michigan?

Understanding Michigan pay laws helps ensure payroll compliance.

  • Minimum wage law: Michigan’s minimum wage is $13.73 per hour, as set by the Michigan Improved Workforce Opportunity Wage Act. All employers are required to pay their employees at least this amount, unless the employee falls into the exempted categories set by the FLSA. Tipped employees can be paid a lower minimum cash wage of $5.49 per hour (40% of the full minimum wage), provided the employee receives at least $8.24 in tips.
  • Overtime laws: Non-exempt employees must receive 1.5 times their regular pay rate for all hours worked beyond 40 hours a week, ensuring that employees are fairly compensated for those extra hours. This is in line with the rules set by the Fair Labor Standards Act (FLSA). Given Michigan’s current minimum wage of $13.73 per hour, this would put the minimum overtime rate at $20.59 per hour. Learn more in detail about Michigan overtime laws.
  • Pay stub laws: Michigan employers must give each employee a pay stub or wage statement whenever they get paid. This document should show details about:
    • Hours the employee worked
    • How much money they earned before deductions
    • Which pay period it covers
    • A breakdown of the deductions
    • The number of units harvested by hand harvesters (if pay depends on the amount of work performed)
  • Pay frequency laws: Employers in Michigan can choose how often they pay their employees; once a month, twice a month, every two weeks, every week, or even more often if they want. However, they need to decide on a regular payday schedule. The frequency of paydays usually depends on the occupation.
  • Pay recordkeeping laws: Michigan requires employers to keep a record for each employee that includes their name, address, birth date, job title or category, total pay rate, total hours worked per pay period, total wages paid per pay period, a detailed list of deductions, and a breakdown of any extra benefits they receive. If they have ten or more employees with the same extra benefits, they can keep one combined list for that group as long as it specifies which group they are in. These records must be kept for at least three years and can be checked by a department representative at any reasonable time.
  • Payroll taxes: Michigan employers are subject to various types of payroll taxes, including state income tax withholding and unemployment taxes. State income tax is withheld from employees’ wages and then paid to the Michigan Department of Treasury. Employers also pay unemployment taxes to the Michigan Unemployment Insurance Agency to fund unemployment benefits for eligible workers.
  • Final paycheck rules: Employees who have voluntarily resigned or been terminated are entitled to receive their final pay by the next scheduled payday. Any accrued benefits should be disbursed following the terms outlined in a written employment contract or the company’s established policy. If the employer is subject to the state’s paid sick leave law, there may be no obligation to compensate employees for any unused, accrued paid medical leave upon their separation from employment. For employees involved in hand harvesting crops, employers must pay their earned wages within one working day after termination.
  • New hire reporting law: Employers are legally obligated to promptly submit details regarding newly hired or rehired personnel within a 20-day window from the date of hire in Michigan. This information is crucial not only for tax records but also enables the cross-referencing of new hires with child support cases, aiding in the identification of parents, the establishment of court-mandated support orders, and the enforcement of pre-existing support arrangements.
  • Pay deductions: Michigan’s Payment of Wages and Fringe Benefits Act (PWFBA) lets employers deduct money from their employees’ paychecks if it’s allowed by law or if an employee agrees to it. Aside from payroll taxes, these deductions may also include:
    • Certain expenses for things like meals, housing, and transportation
    • Money an employee owes to the employer, such as for loans or advances
    • Court-ordered deductions from an employee’s wages
    • Money owed to the government
    • Child support and alimony payments
    • Union dues
    • Charity payments agreed by the employee
    • Contributions to an employee’s retirement fund
  • Workers’ Compensation Insurance: Michigan’s Workers’ Compensation (WC) is a benefit that covers medical expenses when an employee gets hurt or sick because of their job. Even public employers in Michigan usually have to get workers’ compensation insurance for their employees by law. Private employers must give workers’ compensation if they employ at least one employee who works more than 35 hours per week for 13 weeks or longer in a year, including homeowners who hire domestic workers, or they have at least three employees at any given time. There are some exemptions for WC under state law. The cost of workers’ compensation insurance is about $0.70 for every $100 of payroll. For instance, a company with a $300,000 payroll can expect to spend around $2,100 on insurance.
  • Garnishments and deductions: Wage garnishment is a legal process where an employer, under a court order, can deduct a portion of an individual’s earnings to satisfy financial obligations, such as child support, student loans, tax levies, and more. In Michigan, a creditor can garnish whichever is less: Up to 25% of an employee’s disposable earnings, or the portion of an employee’s disposable earnings exceeding 30 times the federal minimum wage. “Disposable earnings” refer to a worker’s wages after mandatory deductions like taxes and Social Security, but not deductions like insurance or pension plans. Michigan law also provides different exemptions based on a worker’s household situation. For child support, federal student loans, or taxes, the government or creditor can garnish wages without needing a court judgment, and the garnishment limits are different from those for judgment creditors.

Federal laws like the FLSA, FMLA, and FUTA also impact an employee’s pay across all states, including Michigan. See the full breakdown in our federal guide to running payroll.

Michigan Payroll Tax Bodies

  • Michigan Department of Treasury: The Michigan Department of Treasury handles various financial matters for the state. They collect and manage state taxes and provide resources on payroll tax rates, tax returns, and other information.
  • Michigan Unemployment Insurance Agency: The Michigan Unemployment Insurance Agency (UIA) is in charge of a program that offers financial help to people who lose their jobs without any wrongdoing on their part. This assistance is funded by taxes collected from employers who fall under the Michigan Employment Security Act.

For the list of federal tax bodies, check out our federal payroll guide.

Important Cautionary Note

This content is provided for informational purposes only. While we make every effort to ensure the accuracy of the information presented, we cannot guarantee that it is free of errors or omissions. Users are advised to independently verify any critical information and should not solely rely on the content provided.