Employer of record in Michigan: PEO rules, payroll registration and what the client still owns (2026)

As of October 2026, Michigan requires a professional employer organization (PEO) to hold a license from the Department of Licensing and Regulatory Affairs (LARA) under the Michigan Professional Employer Organization Regulatory Act, 2010 PA 370, MCL 338.3721 to 338.3747. The act applies to any business providing professional employer services "regardless of its use of a descriptive term," so a provider that calls itself an employer of record and co-employs all or most of your Michigan workforce needs the license, which costs $1,500 to apply plus a $2,015 yearly license fee and requires $100,000 in working capital or security. A PEO pays Michigan unemployment tax under each client's own account, and the state's workers' compensation agency says the client and the PEO must each keep their own policy.

This page is for a company outside Michigan, or a staffing firm, deciding whether to employ a Michigan worker through an EOR or PEO or to register itself. The general differences between an EOR, a PEO and payrolling are in what is an employer of record and payrolling services explained. The full state checklist is in hiring employees in Michigan, and personnel agency licensing, with its exemption for temporary staffing firms, is in staffing agency license in Michigan.

Michigan employer of record and PEO rules at a glance

Does Michigan license PEOs or employer of record companies?

It licenses PEOs, and the definition is written so the label does not matter. Under MCL 338.3723, a PEO is "any person engaged in the business of providing professional employer services regardless of its use of a descriptive term other than 'professional employer organization' or 'PEO'." Professional employer services means a co-employment relationship "in which all or a majority of the employees providing services to a client or to a division or work unit of the client are covered employees," and the co-employment must be "intended to be an ongoing relationship rather than a temporary or project-specific one." Three arrangements are outside the definition: temporary help services as defined in the unemployment law, independent contractor arrangements, and employee sharing within a commonly owned group of companies.

• License required. A person "shall not provide, advertise, or otherwise hold itself out as providing professional employer services in this state, unless licensed or exempt" (MCL 338.3727). An audited financial statement no older than 13 months comes with the application, and a new audit is due every year within 270 days after the fiscal year ends.
• Fees. The statute caps the application fee at $1,500 and sets a $1,500 annual license fee that LARA may adjust every two years for Detroit-area inflation (MCL 338.3733). LARA's PEO page now lists a $1,500 application fee plus a $2,015 license fee, $3,515 in all, for applications filed from May through November; the license fee drops to $1,511.25 from December through February and $1,007.50 in March and April. The same amounts apply to a standard license, a limited license and a PEO group license. Every license renews on August 31 for $2,015, and LARA says it "does not have a late renewal period."
• Working capital. At least $100,000 in working capital, or a bond, irrevocable letter of credit or securities worth $100,000 held to secure "all taxes, wages, benefits, or other entitlements due to, or regarding, covered employees." A PEO without positive working capital posts $100,000 plus the deficit (MCL 338.3735).
• Limited license. A PEO domiciled and regulated in another state can get a one-year limited license if it "does not maintain an office in this state or does not directly solicit clients" in Michigan and has no more than 50 covered employees in Michigan on any day. The working capital rule does not apply to it (MCL 338.3729).

LARA must keep a public list of licensed PEOs (MCL 338.3731). To check a provider, use the "Verify a License" link on LARA's PEO page, which opens the MiCLEAR license search, and search the provider's legal name and any trade names.

What if the provider is an employer of record but holds no Michigan PEO license?

Ask which exclusion it relies on. The two that come up are these:

• Temporary help service. The unemployment law describes a temporary help firm as "an employer whose primary business is to provide a client with the temporary services of 1 or more individuals" (MCL 421.29). That fits a six-month contract assignment. It fits less well a worker you recruited yourself, will direct indefinitely and would have hired directly if you had a Michigan payroll.
• Not a majority. The PEO definition turns on covering "all or a majority" of the workers who serve the client or "a division or work unit" of it. If your only Michigan employee is employed through the provider, ask the provider in writing how it reads that test for your account and why.

A temporary staffing firm that pays the wages and payroll taxes, carries workers' compensation and "sustains responsibility for the acts of the employee" is exempt from personnel agency licensing (MCL 339.1003(2)(c); see the Michigan staffing license page), but it still registers as the employer with Treasury and the Unemployment Insurance Agency.

Who pays Michigan unemployment tax on an EOR or PEO worker?

The PEO files and pays, but on the client's account. Under MCL 421.13m, a PEO that is a liable employer "shall file a single quarterly wage report and unemployment contribution report and pay contributions of its client employers based on the account information of each client employer." The license application itself must certify that the PEO has made this election (MCL 338.3727(2)(i)). In practice that means:

• Your rate follows you. A contributing employer that becomes a PEO client keeps its existing unemployment tax rate or establishes one under the normal rules. A client that never registered with the agency, or whose account was closed more than a year ago, must be registered separately within 30 days and gets the new employer rate.
• Notice of joining and leaving. The PEO tells the agency within 30 days after a business becomes its client and within 30 days after it leaves.
• Split workforces. If you lease some employees from the PEO and keep others, the PEO reports the leased employees under your account number and you report the rest under a subaccount the agency assigns.
• Claims. The PEO is "the employer for purposes of claims management and hearings" for its clients, so it answers unemployment claims from your Michigan workers.

So using a PEO does not avoid a Michigan unemployment account in your name; it changes who files on it.

Who carries workers' compensation in Michigan?

The Workers' Disability Compensation Act covers private employers that regularly employ three or more people at one time, including part-timers, or one or more people working 35 hours or more a week for 13 weeks or longer in the preceding 52 weeks, according to the agency's insurance requirements page. A single full-time remote employee can meet that test after 13 weeks.

Michigan is unusual on who carries the policy. The agency's employer FAQ answers whether a business still needs a policy when its PEO has one covering its employees: "Yes, as settled by case law (Kidder v. Miller-Davis Company) and PA 370 of 2010, both a business (also known as client company) and their PEO are required to maintain separate workers' comp policies as they are considered co-employers." The PEO statute points the same way: every professional employer agreement must state "the responsibility of the client and the PEO to comply with the worker's disability compensation act" (MCL 338.3737). Budget for your own Michigan policy, or written confirmation from your insurer that your policy covers Michigan, before the first day.

Which Michigan registrations, reports and notices still apply?

• State withholding. Treasury's 2026 withholding guide (Form 446) says "Employers located outside Michigan that have employees who work in Michigan must register and withhold Michigan income tax from all employees working in Michigan." The 2026 rate is 4.25% with a $5,900 personal exemption. Registration runs through Michigan Treasury Online, and each employee completes Form MI-W4; the federal W-4 cannot substitute for it.
• City income tax. Treasury says twenty-four Michigan cities levy taxes related to income, including Detroit, Grand Rapids and Lansing. Detroit's withholding is administered by Treasury: its 2026 Detroit withholding instructions (Form 5469) set 2.4% for residents and 1.2% for nonresidents and require the employer to be registered for Michigan withholding first. Most other cities run their own. Ask the provider which city taxes it withholds for a worker who lives or works in one.
• New-hire reporting. Report new hires and rehires "within 20 days of the date of hire or rehire" to the Michigan New Hire Operations Center, per MDHHS's employer publication.
• Co-employment notice. The PEO must give each covered employee written notice of "the general nature of the coemployment relationship" (MCL 338.3737(2)).
• Earned sick time. Under the amended Earned Sick Time Act, in effect since February 21, 2025, employers give written notice of an employee's rights at hiring and display the state poster, per LEO's ESTA page. Agree in writing whether the PEO's leave policy or yours provides the time; under MCL 338.3739(8), benefits covered employees receive through the PEO count toward the client's mandates.
• Paid leave programs. We found no Michigan paid family leave or disability insurance program that needs a separate employer registration.
• E-Verify. Not required of most private employers; it is a condition of contracts with most state departments. See E-Verify requirements in Michigan.

What does the client company still own in Michigan?

Unless the agreement says otherwise, the client "is solely responsible for directing, supervising, training, and controlling the work of the covered employees" and for their acts in its business (MCL 338.3739), and the act does not change anyone's rights or obligations "under any state or federal act" (MCL 338.3725). In practice:

• Hiring rules. Michigan has no statewide pay transparency law, and MCL 123.1384 stops local governments from regulating what employers ask on applications or in interviews; both are covered in the Michigan hiring checklist. Remote postings open to people in other states can pick up those states' rules (see pay transparency laws by state). Background checks follow the federal FCRA process plus the state limits in Michigan background check laws.
• Interviews and testing. Recording rules are in Michigan recording consent law for interviews, and drug policy, including cannabis, is in Michigan drug testing laws.
• Non-competes. The act says a PEO agreement does not "affect, modify, or amend" any restrictive covenant between the client and a covered employee (MCL 338.3725(2)(b)). A non-compete stays between you and the worker; see Michigan non-compete law.
• Licenses. The act does not change licensing that applies to the client or the worker, so a nurse or electrician still needs the Michigan license the job requires (MCL 338.3725(3)).
• Co-employment liability. Wage, discrimination and safety claims can name both businesses; see joint employer liability for staffing agencies.
• Federal payroll taxes. The IRS says the client "generally remains responsible" for employment taxes unless the PEO is certified; check the IRS's CPEO public listings.

When is registering your own company in Michigan the better route?

Look at what a PEO leaves with you: an unemployment account in your name, the PEO filing on it, and a workers' compensation policy of your own. Registering yourself adds a Treasury withholding account, MI-W4 forms, city tax withholding where it applies and new-hire reports. That route tends to win when you expect several Michigan hires, already run multi-state payroll, or want to keep some Michigan staff off the PEO, since the PEO model covers all or most of a workforce or work unit. A licensed PEO fits a small team whose payroll, benefits and claims handling you want run together; a temporary staffing firm fits a defined assignment.

Questions to ask an employer of record or PEO before signing for Michigan

1. Do you hold a Michigan PEO license, a limited license, or neither? If neither, which exclusion do you rely on? Give us the license number so we can check it in MiCLEAR.
2. Do you meet the $100,000 working capital requirement, or have you posted a bond, letter of credit or securities?
3. Will our wages be reported under our own Unemployment Insurance Agency account, and who registers it if we have none?
4. Your workers' compensation policy covers our workers; what policy does Michigan expect us to keep, and will you give us the certificate?
5. Which city income taxes will you withhold for a worker who lives or works in Detroit, Grand Rapids or Lansing?
6. Who gives the earned sick time notice at hire, and whose sick time policy applies?
7. Are you an IRS-certified PEO, and who is liable for federal employment taxes if you miss a deposit?
8. Can we move the worker to our own payroll later, and is there a conversion fee?

Employer of record rules in other states: Arkansas, California, Florida, Hawaii, Maryland, Minnesota, Mississippi, Nebraska, New York, Oregon, Rhode Island, South Carolina, Tennessee, Texas and Utah.