A Look at Minnesota’s Paid Family and Medical Leave Bill

By Published On: June 29, 2023Categories: Businesses, Tax News, Services - Tax

Recently, Minnesota passed legislation regarding paid family and medical leave. The bill, called HF2, guarantees employees up to 20 weeks paid family and medical leave per year. This legislation adds Minnesota to the growing number of states passing similar legislation to ensure residents have access to paid leave benefits. In this article, we will delve into the key provisions of Minnesota’s legislation and discuss its potential impact on businesses and individuals alike.

What benefits are covered?

The passed legislation allows any employee up to 20 weeks of benefits in a 52-week period. Benefits include time to care for oneself or a family member.

Who is eligible?

The program allows eligible applicants to take leave for any family member’s “serious health condition, a qualifying exigency, safety leave, bonding leave, or applicant’s own pregnancy, pregnancy recovery, or serious health condition.” To allow for self-employed individuals and gig workers, the benefit is tied to the individual and not a business.

When does the legislation begin?

The program will go into effect January 1, 2026.

How is the program funded?

The state of Minnesota is providing $648.3 million from the recent budget surplus to get the program started. This money will be used to create the Family and Medical Benefits Insurance Division within the Minnesota Department of Employment and Economic Development and allow benefits to be available starting in 2026. After that, the program will be funded by a 0.7% payroll tax on businesses, at least half of which would be paid by the employer and the rest paid by the employee.

How does this affect my business?

Beginning January 1, 2026, employers must pay quarterly premiums to the family and medical benefit insurance account on the taxable wages paid to each employee. The rates are as follows:

  • 0.7% for an employer participating in both family and medical benefit programs
  • 0.4% for an employer participating in only medical benefit programs with an approved private plan for the family benefit program
  • 0.3% for an employer participating in only the family benefit program with an approved private plan for the medical benefit program

Employers must pay at least half of the annual premiums.  The remaining amount will be paid by employees through a wage deduction. For employers with under 30 employees there is a small business exclusion where the employer will pay a reduced amount. In that case, employees will still pay the same amount as those not employed by small businesses.

Does my business have to participate?

There are options for your business to offer a private plan as long as that plan provides the same, or better, coverage that the public plan provides. The private plan must be reviewed and approved by the Family and Medical Benefit Insurance Division before being enacted. A private plan can be self-insured or insured through a carrier. An employer with an approved private plan does not need to pay the tax premiums required by the statute, but it must pay a private plan approval and oversight fee. The fee is $250 for employers with less than 50 employees, $500 for employers with between 50 and 499 employees, and $1,000 for employers with 500 or more employees. The employer must post notice of the private plan for its employees.

How do I prepare my business?

Since there is a pretty long ramp-up period, it gives employers time to prepare for the new requirements. Looking ahead, there are a few things employers can do to prepare:

  • Evaluate if a private plan is right for your business
  • Work with your CPA to address the upcoming additional payroll taxes
  • Work with payroll to put appropriate infrastructure in place to support the new leave requirements and amend employee earning statements
  • Review policies and procedures to ensure the updated leave policies are included

How can SDK help?

The team at SDK CPAs stays up to date on all legislation that affects our clients. If you have questions about how the new legislation will affect your business, reach out to our team and we can look at your scenario and help you make a plan. Call us at 612-332-5500 or email us at info@sdkcpa.com to get started.