Flawed PFML Mandate Will Harm Minnesota Small Business

Date: May 25, 2023

“The math doesn’t work on this paid leave mandate."

St. Paul (May 25, 2023) – The National Federation of Independent Business in Minnesota, or NFIB, is expressing its disappointment with Governor Walz’s approval of the Paid Family and Medical Leave (PFML) Mandate on small business owners and their employees. Governor Walz is signing the PFML mandate today.

The final version of the PFML Mandate comes with a $1.5 billion per year payroll tax hike on small business owners and workers, and up to five months of paid leave per employee every year. The legislation includes complex employment regulations and severe penalties that will add to the regulatory headache on Main Street.

“The PFML mandate is a deeply flawed proposal that will cost much more than expected and make it harder for small businesses to keep their doors open,” said John Reynolds, NFIB State Director in Minnesota. “Throughout the legislative process, lawmakers failed to answer the fundamental question of how small employers are supposed to staff their business when every employee can take up to five months off per year for a wide range of reasons.”

Only four other states – Colorado, Delaware, Maryland, and Oregon – require the employer to share the cost of both the medical and family payroll tax. Compared to these states, the Minnesota mandate will have the longest leave length and most expensive wage replacement. Despite having less generous programs, each of the four states has a first-year payroll tax rate above the 0.7% rate proposed in House File 2.

“The math doesn’t work on this paid leave mandate,” added Reynolds. “We believe a serious analysis of the payroll tax will show it needs to be much higher in order to avoid financial collapse.”

The PFML legislation requires the state to contract for an independent actuarial analysis of the program’s financial soundness. The actuarial report is due by October 31, 2023. If the report shows the program is not financially viable at a 0.7% payroll tax rate, the commissioner of Employment and Economic Development can increase the payroll tax rate to 1.2% without legislative approval.

Small business owners routinely report that labor quality and labor availability are among their biggest challenges. According to NFIB’s most recent monthly Jobs Report, 43% of owners reported job openings they couldn’t fill and 90% reported few or no qualified applicants for open positions.

NFIB and its 10,000 members around the state, have been very vocal about how this legislation would impact their ability to operate and hire employees. You can hear their voices and find out more here.

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