Bill
HB 5007
HB 5007 establishes a default employee classification for any service in Michigan, with two exceptions; effective Jan 1, 2026, it raises employer costs and reclassifications.
Purpose
- HB 5007 amends section 42 of the Michigan Employment Security Act (MCL 421.42) to change how an individual’s services are classified as “employment” for unemployment‑insurance purposes. The bill tightens independent‑contractor exemptions and establishes a new default presumption that a worker is an employee unless specific conditions are met.
Key provisions
- Defines “employment” broadly as service performed for remuneration or under a contract of hire, and restates rules governing when service is considered localized to Michigan.
- Retains historical reference points:
- Prior to January 1, 2013: employment was determined by whether the employer exercised control/direction over performance (the traditional control test).
- From January 1, 2013 until the new change takes effect: the agency used the IRS 20‑factor test (Rev. Rul. 87‑41) to determine an employer–employee relationship.
- New rule effective January 1, 2026: an individual who performs any service for a hiring entity is presumed to be an employee of that hiring entity unless one of two exceptions applies:
1. The individual is a separate business entity; or
2. ALL of the following are true:
- The individual is free from control and direction in performing the service under contract and in fact;
- The service is performed outside the usual course of business of the hiring entity; and
- The individual is customarily engaged in an independently established trade, occupation, profession, or business similar to the service performed.
- Makes an individual from whom an employer is required to withhold federal income tax prima facie evidence of employment.
- Preserves agency authority over interstate/aircraft service, elections regarding services performed out of state, and application of federal coverage rules.
Who is affected
- Employers across Michigan (state agencies, private sector employers, public employers) — by broadening the default classification of workers as employees, many hiring entities may face increased payroll tax, unemployment insurance contributions, withholding, and benefits obligations.
- Workers and independent contractors — some workers currently classified as independent contractors may be reclassified as employees, altering tax withholding, benefits eligibility, and unemployment‑insurance coverage.
- Gig‑economy platforms, staffing companies, professional services firms, and employers relying heavily on contractors — these groups are most likely to face classification shifts and compliance costs.
Potential impacts and considerations
- Likely increase in employer costs (payroll taxes, unemployment insurance contributions, benefit obligations) and administrative burdens to reclassify and withhold/pay taxes for reclassified workers.
- Increased litigation and appeals before the Unemployment Insurance Agency over classification determinations.
- The new “all‑three” test closely parallels the “ABC” frameworks adopted in other states and is narrower than many common‑law/IRS tests — making independent contractor status harder to sustain.
- Effective date for the new default presumptive employee rule: January 1, 2026. Other provisions reference historical application dating back to 2013.
Legislative status and timeline (selected)
- Filed: March 13, 2025
- First reading: April 3, 2025; referred to State Affairs
- Public/committee activity: Committee substitute considered and public hearing held April 28, 2025 (left pending)
- Electronic reproduction/introduced (additional filing): September 18, 2025; referred to Committee on Economic Competitiveness
- Companion/related: SB 2117 noted as a companion bill.
Note: This summary focuses on the text amending MCL 421.42 (employment classification for unemployment‑insurance purposes). The bill may interact with other state and federal tax and labor rules; employers should review related statutes, agency guidance, and seek legal or tax advice for compliance planning.
Compiled from official sources — confirm details with the bill’s official record.
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