New Mandates Will Impact Almost Every Small Employer In Minnesota
The 2023 Minnesota Legislative Session concluded on May 23. In the coming weeks, we’ll explore the session’s impact on small businesses and the general business environment. In part one, we looked at tax and fee hikes that will impact small businesses, consumers, and others.
In part two, we’ll look at some of the significant employment mandates passed during the 2023 Minnesota Legislative Session.
NFIB Minnesota vigorously opposed all of these mandates and, where possible, worked to minimize the negative impact on small businesses. With state government completely controlled by progressive Democrats, stopping or mitigating these mandates was an uphill battle.
Paid Family and Medical Leave (PFML): The largest employment mandate of the session, PFML passed despite bipartisan opposition and over the strong objections of NFIB.
PFML is a state-run paid leave program funded by a payroll tax that is assigned to the employer but can be split 50/50 with the employee at the employer’s discretion. The payroll tax is pegged at 0.7% in the first year but could rise to as much as 1.2% in year one and beyond.
The program’s benefits and payroll tax begin on January 1, 2026.
Amount of Leave, Qualifying Conditions: Each employee is eligible to receive up to 20 weeks of paid leave per year. The leave can be used for an employee’s own serious health condition (mental or physical), bonding with a new child (birth, adoption, or foster), to care for a family member, or for the employee’s safety. The legislation’s definition of family is expansive and includes children or children-in-law, parents, siblings, grandchildren, grandparents, spouse’s grandparents, or anyone with whom the employee has a relationship “that creates an expectation and reliance” that the employee care for them.
Wage Replacement: Under PFML, the state replaces up to 90% of an employee’s salary on a sliding scale based on employee wages, with most workers (those earnings <$100,000 per year) receiving between 70% and 90% of wage replacement while on leave.
Application, Administration: To take paid leave, an employee will submit a claim to a new division within the Minnesota Department of Employment and Economic Development (DEED). An application may be filed up to 60 days prior to the start of leave. The employer(s) and employee will receive a notice of application within an unspecified time period following the initial application (referred to as a “determination of benefit account” in the legislation). The employee must submit documentation, such as a doctor’s note, that the employee qualifies for leave. A qualifying event must be for a period of seven calendar days or more.
The employee is required to provide notice of intent to take paid leave to the employer 30 days prior to the beginning of leave, if foreseeable and practicable. An employer can require an employee to provide notice according to the employer’s usual and customary notice and procedural requirements for requesting leave, unless prevented by “unusual circumstances.” Failure to provide notice does not affect timing or eligibility for leave.
DEED will review the application and determine, based on wage history, how much paid leave the employee qualifies for. Within two weeks of making a determination, DEED will notify the employee and employer of the decision.
How Leave Can Be Used: Leave can be taken in a continuous block of time or intermittently, largely at the discretion of the employee. Intermittent leave for a serious health condition must be “reasonable and appropriate to the needs of the individual.” Intermittent leave for bonding or safety can be taken at the employee’s discretion. Employee’s must provide “a schedule of needed workdays off as soon as practicable” and make “a reasonable effort to schedule the [leave] so as not to disrupt unduly the operations of the employer.”
As with the notice, there is no consequence if the employee fails to comply with these requirements, but an employer can limit the amount of intermittent leave to no more than 480 hours in a 12 month period.
Other Considerations for Small Employers. The bill contains a number of onerous regulations, including the following requirements (which, generally, begin on 1/1/2026):
- Employers must post notice of PFML rights in a conspicuous place on each of its premises (akin to USDOL posters). The workplace notice must be in English and each language other than English spoken by five or more employees or independent contractors in the workplace, if such a notice is available from the department.
- Within 30 days of an employee’s first date of employment or 30 days before premium collection begins (whichever is later), an employer must provide written notice to the employee explaining PFML benefits in written or electronic form.
The notice must include the amount of premium deductions made by the employer, the employer’s premium amount, name and mailing address of the employer, the ID number assigned to the employer by DEED, instruction on how to file a PFML claim, the mailing address, email, and telephone of the department, and any other information required by the department. DEED will provide the information for this notice.
Failure to comply may result in a civil penalty of up to $50 per employee for the first violation and up to $300 per employee for subsequent violations.
- Employers must continue an employee’s coverage in a group insurance policy or health care plan while on PFML, including for the employee’s dependents. The employee remains responsible for their share of the benefits. This section does not apply to construction industry employees working under a collective bargaining agreement.
- Employers must update employee earnings and benefit statements to include the amount of PFML payroll tax paid by the employer and the amount deducted from the employee’s paycheck.
- Employees are eligible to take PFML on day one of a new job but are not eligible for job protections (discussed below) until 90 days after the start of employment.
- PFML must count toward service time for the purposes of pensions or retirement plan vesting or eligibility to participate.
- An employee is entitled to the same or a “virtually identical” position upon return from leave, including the shift and amount of overtime worked prior to leave.
- An employee is entitled to any unconditional pay increases (e.g., cost of living increases). Conditional pay increases (e.g., those based on length of service or work performed) must be provided on the same basis as what’s offered to employees who take non-PFML leave.
- All benefits must be resumed upon return to work, subject to changes in benefit levels that were implemented during the leave and affected the entire workforce.
- An employee is not entitled to accrue seniority or additional benefits during PFML.
- An employer cannot require an employee to use vacation, sick time, or other paid time off prior to or in lieu of using PFML. In other words, an employee can take PFML and vacation/sick/paid time off in the same 52-week period for a total amount of leave greater than 20 weeks.
- Most unpaid FMLA leave and state-mandated unpaid pregnancy/bonding leave ( 181.941) is not stackable with PFML, unless approved by the employer. However, if the PFML leave is for a purpose not covered by FMLA the two leaves can be combined for a duration greater than 20 weeks per year. For example, if an employee used 20 PFML weeks for the birth of a child and to care for a sibling in the same year, they could still take up to 12 weeks to care for a parent or spouse under FMLA because FMLA does not cover leave for the care of a sibling.
- Obstruction, retaliation, penalization, or interference with or as a result of use of PFML is prohibited and punishable by severe administrative fines and through civil action.
Narrow Exclusions. There is a limited exemption for seasonal employees of certain seasonal hospitality employers. A person who is employed for no more than 150 days during any consecutive 52-week period is not eligible for the program. To qualify as a seasonal hospitality employer, the business must:
- have average receipts during one six month period of the preceding year that are no more than 33% of its average receipts for the other six month period of that year; and
- be a business identified in Minnesota Statute 157.15, Subd. 4-9 or 11-14.
If an employee exceeds the 150 day threshold, the employer must notify DEED within five business days.
In addition to the seasonal hospitality exclusion and the narrow collective bargaining exemption from insurance continuation, construction employees working under a collective bargaining agreement are exempt from the right to reinstatement/employee protections in Sec. 268B.09, Subds. 6-7 if the union “maintains a referral-to-work procedure for employees to obtain employment with multiple signatory employers.”
Small Employer Assistance: The PFML program provides limited assistance for very small employers.
- Payroll Tax Exclusion. For businesses with 20 or fewer employees, the PFML law excludes the lesser of (i) $12,500 of each employee’s wages or (ii) $120,000 from the payroll tax calculation. For each employee over 20 employees, the exclusion is reduced by $12,000, so that it phases out at 30 employees.
- Employers with fewer than 30 employees and less than $3,000,000 in gross annual revenue may receive a grant of up to $3,000 per employee for hiring a temporary worker or increased an existing worker’s wages to compensate for an employee who uses PFML for seven days or more. The total amount of grant assistance an employer can receive in one year is $6,000.
Employers must apply to DEED for the grants, which are approved on a first come, first served basis. The total amount of assistance available per year is $5,000,000.
The complete final legislation can be found here: HF 2 9th Engrossment – 93rd Legislature (2023 – 2024) (mn.gov). You can find a comparison of the initial proposal and final legislation here.
Click here for the Minnesota House vote on this bill.
Click here for the Minnesota Senate vote on this bill.
This legislation was authored by Sen. Alice Mann (D-Edina), Rep. Ruth Richardson (D-Mendota Heights), and others.
Earned Sick and Safe Time (ESST). Beginning January 1, 2024, all employers* are required to provide all employees up to 48 paid hours off per year in their first year of employment and up to 80 paid hours off per year as “earned sick and safe time.” There is no exception for part-time, seasonal, or other employment status.
*Excluding construction trades unions subject to a collective bargaining agreement.
Employers who already provide sick or other paid time off that meets or exceeds the accrual requirements (described below) and allow the sick or PTO to be used for the same purposes as ESST are not required to provide additional time off under this law.
In other words, if you provide each employee with up to six or more paid days off per year, let them use it for the same reasons as ESST, and let them carryover or payout unused time (see below), you don’t have to provide an additional six ESST days. However, you will still need to track the time and comply with the other obligations as required in the ESST law.
How Much Time Off Per Year: The employee “earns” ESST based on hours worked: one hour of ESST for every 30 hours worked, up to 48 hours per year. An employee can carry over unused hours from one year to the next, up to a maximum of 80 total hours of ESST at any given time.
Employers can avoid carryover of unused hours and limit the total at any given time to 48 hours by paying out unused ESST at the end of one year and providing 48 hours of ESST at the beginning of the next year.
Why and How ESST Can Be Used: Qualifying uses of ESST include:
- An employee or employee’s family member when there is: (i) a mental or physical illness, injury, or other health condition; (ii) need for medical diagnosis, care, or treatment of (1), or (iii) need for preventative medical or health care;
- An absence due to domestic abuse, sexual assault, or stalking of the employee or employee’s family member, provided the absence is to seek medical attention related to the event, obtain services from a victim services organization, or obtain psychological or other counseling;
- Closure of the employee’s place of business or family member’s school or place of care is closed due to weather or public emergency;
- Inability to telework when the employee is prohibited from coming to the office or awaiting the test results for a possible communicable disease; or
- Health authorities or a healthcare professional has determined that the employee or employee’s family member needs to quarantine.
An employee can use ESST in the smallest increment of time tracked by the employer’s payroll system, provided the smallest increment is not more than four hours. By agreement with an employer, an employee can return from ESST leave on a part-time basis.
Notice to Employer, Documentation: If the need to use ESST is foreseeable, an employer may require up to seven days’ advance notice. If the need to use ESST is not foreseeable, an employer may require an employee to provide notice as soon as practicable.
If advance notice is required, the employer must provide a written copy of the notice policy to each employee. An employer may not deny use of ESST if a written copy of the policy was not provided.
An employer may require reasonable documentation that use of ESST is for a qualifying purpose. Reasonable documentation for sick time includes a signed statement from a health care professional or a written statement from the employee indicating ESST is being used for a covered purpose.
Reasonable documentation for safe time includes a court record or documentation signed by a victim’s services organization, attorney, policy officer or antiviolence counselor. Employers are prohibited from requiring disclosure of details relating to domestic abuse, sexual assault, or stalking, or an employee’s or employee’s family members’ medical condition, as a condition of using ESST.
Other Considerations for Small Employers: As with PFML, the ESST law contains many regulations that apply to small employers, including:
- Employers must update their employee earnings and benefits statement to include (i) the number of ESST hours accrued and available for use and (ii) the number ESST hours used during the pay period.
- Employers must provide notice of employee rights under ESST by: (i) posting in the workplace, (ii) providing a written or electronic notice; or (iii) a conspicuous posting in a web-based or app-based platform through which an employee performs work. The Minnesota Department of Labor and Industry (DLI) will prepare a uniform notice for employers to use in the five most common languages spoken in Minnesota. DLI will also provide the notice in other languages upon request of an employer.
- Employers must continue group insurance or health plan coverage for an employee and dependents when the employee uses ESST.
- Accrual of ESST begins on the first day of employment and there is no waiting period for use of ESST.
- Employees are entitled to return to their former position or a “position of comparable duties, hours, and pay” after using ESST.
- Obstruction, retaliation, penalization, or interference with or as a result of use of ESST is prohibited and punishable by severe administrative fines and through civil action.
You can read the final ESST legislation in 2023 Minnesota Laws, Chapter 53, Article 12.
Click here for the Minnesota House vote on this bill.
Click here for the Minnesota Senate vote on this bill.
The original legislation was authored by Sen. Sandy Pappas (D-St. Paul), Rep. Liz Olson (D-Duluth), and others.
Non-Compete Agreement Ban. Starting with contractors and agreements entered into on or after July 1, 2023, covenants not to compete contained are void and unenforceable.
Non-compete agreements are defined as an agreement that restricts the employee, after termination of employment, from performing work (i) for another employer for a specified period of time, (ii) in a specified geographic area, or (iii) for another employer in a similar capacity.
Certain exceptions apply, including when the agreement is made:
- during the sale of a business, in which case the person selling the business, partners, members, or shareholders, and the buyer of the business may agree on a temporary and geographically restricted non-compete agreement prohibiting the seller of the business from carrying on a similar business within a reasonable area for a reasonable length of time; or
- in anticipation of the dissolution of a business.
The prohibition does not invalidate an agreement containing other non-prohibited provisions, such as a confidentiality or non-solicitation agreement.
You can read the final ESST legislation in 2023 Minnesota Laws, Chapter 53, Article 6.
Click here for the Minnesota House vote on this bill.
Click here for the Minnesota Senate vote on this bill.
The original legislation was authored by Sen. Alice Mann (D-Edina), Rep. Steve Elkins (D-Bloomington), and others.
Pay History Inquiry Ban. Beginning on January 1, 2024, employers are prohibited from inquiring about, considering or requiring disclosure of a job applicant’s pay history. The prohibition into the pay history of an applicant does not apply if it’s a matter of public record under federal or state law.
An applicant may voluntarily and without any prompting disclose their pay history for the purpose of negotiating wages, salary, benefits or other compensation.
A violation of the prohibition is subject to investigation and penalties from the Minnesota Department of Human Rights.
The complete pay history ban can be found in 2023 Minnesota Laws Chapter 52, Article 19, Section 56.
Click here for the Minnesota House vote on this bill.
Click here for the Minnesota Senate vote on this bill.
The original legislation was authored by Sen. Rob Kupec (D-Moorhead), Rep. Kaohly Her (D-St. Paul), and others.
State-Facilitated Employee Retirement Accounts. Beginning January 1, 2025, employers with five or more employees who do not sponsor or contribute to an employee retirement savings plan must facilitate enrollment of employees in a state-facilitated individual retirement account program. Employees are permitted to opt not to participate.
The “Secure Choice Retirement Program” will be operated by a seven-person board comprised of state officials, gubernatorial appointees, and members appointed by the Minnesota Legislative Commission on Pensions and Retirement.
The program will be opened in a minimum of two phases, likely based on employer size, occurring between January 1, 2025 and December 31, 2026. The board is responsible for developing investment options, establishing a default investment option, setting minimum contribution rates and an auto-escalation schedule, establishing a system for facilitating payroll deductions, and more.
Employer obligations under this program include:
- providing board-prepared information to employees on the program at least 30 days prior to the first paycheck from which deductions could be withheld;
- automatically enrolling employees in the program unless the employee opts not to participate; and
- facilitating the transfer of participating employee contributions via payroll deduction and the mechanism established by the board.
At least eleven other states have passed laws establishing or are already operating a similar state-facilitated retirement program. To get a sense of what this program will be like, you can see the Illinois Secure Savings program here, which began operations in 2018: Illinois Secure Choice (ilsecurechoice.com)
There are many downsides to this program, including its auto-enrollment and auto-escalation requirement, as well as a politically appointed board controlling investment options. We’ll explore the program’s flaws in a future post.
The final Secure Choice Retirement Program law can be found here: 2023 Minnesota Laws Chapter 46.
Click here for the Minnesota House vote on this bill.
Click here for the Minnesota Senate vote on this bill.
This legislation was authored by Sen. Sandy Pappas (D-St. Paul), Rep. Jamie Becker-Finn) (D-Roseville), and others.
