Washington’s PFML premium tax has nearly doubled since its inception in 2020, providing a cautionary tale for Minnesota lawmakers.
ST. PAUL (Jan. 26, 2024) – In advance of a legislative update from the Minnesota Department of Employment and Economic Development later today, the National Federation of Independent Business (NFIB) is reminding Minnesota lawmakers that Paid Family and Medical Leave (PFML) financial projections still don’t add up. The Senate Jobs and Economic Development Committee will hear from DEED at 1p.
When Minnesota lawmakers enacted a state-run 20-week, $1.5 billion PFML program last year, the Walz Administration assured Minnesotans that its cost estimates were “doubly conservative” and “the 0.7 percent premium rate would not change.” HF 2 4A Fiscal Note, pgs. 11-12, 4/25/2023.
But recent analysis of other state’s PFML programs, including Washington’s PFML program, should sound the alarm bells for both the Walz Administration and state lawmakers. Since its inception in 2020, WA PFML’s premium tax has nearly doubled, and an independent actuary anticipates the tax will reach 1% of wages by 2026.
Based on these findings, NFIB State Director John Reynolds urged lawmakers to reform the MN PFML program to avoid PFML Tax hikes and prevent harm to small businesses.
“Minnesota families do all they can to live within their means and keep their promises. Lawmakers should strive to do the same, and they can start by making immediate reforms to the deeply flawed PFML mandate. Looking at other states makes clear that, without major changes, Minnesota PFML costs will continue to rise and could sink small employers across our state.”
“Setting a hard cap on the PFML Tax at 0.7% is the very least the Walz Administration can do to keep its promise to Minnesota taxpayers.”
CLICK HERE to read more about NFIB Minnesota’s recommended changes to the PFML MN program.
Background:
Below are the Walz Administration’s assurances regarding the PFML program.
Based on data from other state PFML programs, NFIB Minnesota repeatedly challenged the state’s cost estimates as unrealistic in legislative testimony and editorials.
NFIB’s concerns were validated last October when an independent actuarial analysis found the state underestimated the cost of PFML by ~$200 million per year.
The MN PFML report found the payroll tax will spike by 31% in the second year and remain well above the Walz Administration’s projections in perpetuity.
Washington PFML Analysis Raises New Questions About Cost
However, an analysis of another state’s PFML program done by the same firm – Milliman – raises new questions about whether Minnesota small businesses and workers will pay even more in taxes.
A week after releasing the Minnesota report, Milliman released an analysis of Washington’s PFML (WA PFML) program. It provides a cautionary tale for Minnesota lawmakers.
WA PFML’s premium tax has nearly doubled since its inception in 2020. Milliman has released two reports on WA PFML, one in 2022 and another in 2023. Milliman expects the tax to keep rising and approach 1% by 2026.
*In 2024, the WA PFML Tax will temporarily decline due to a one-time infusion of state money.
Despite Minnesota having a more expensive program, the Walz Administration and Milliman project the MN PFML Tax to remain below the WA PFML Tax.
Max Annual Leave Weeks
WA PFML: 16 weeks + 2 weeks for pregnancy/childbirth complications
MN PFML: 20 weeks
Max Weekly Benefit Payment
WA PFML: capped at 90% of the statewide average weekly wage (SAWW)
MN PFML: capped at 100% of SAWW
Small Businesses Need Answers, Predictability
If they want to avoid potential insolvency, the Minnesota Legislature will have to address the MN PFML Tax before the program takes effect on January 1, 2026.
The PFML law fixes the first-year tax rate at 0.7%. The Minnesota Department of Employment and Economic Development can increase the rate thereafter.
Based on program data from other states, NFIB MN believes the true PFML Tax will exceed 1% and possibly exceed the statutory cap of 1.2%.
This is why one of NFIB’s core recommendations is to follow the lead of Delaware and Maine, which took the responsible approach of imposing a hard cap on their PFML Tax rates. Those states allow administrators to adjust paid leave weekly payment levels on an annual basis to remain under the cap.
In simpler terms, Delaware and Maine require their PFML programs to live within the means.
Minnesota should do the same and set a hard cap on the PFML Tax at what the Walz Administration assured it would cost: 0.7%.
