New Mandates, Fees, Taxes from 2023 Minnesota Legislative Session
As the New Year approaches, the National Federation of Independent Business – Minnesota, or NFIB MN, is advising small businesses of new laws that impact Main Streets across Minnesota.
The 2023 Minnesota Legislative Session produced sweeping new regulations, mandates, and tax increases that carry significant implications for small business owners in every part of the state. We look back at just some of the key new laws already in effect and ahead at some of the most critical ones still to come.
“The 2023 Minnesota Legislature passed the most expensive and burdensome small business regulations in state history,” said John Reynolds, NFIB Minnesota State Director. “Small businesses that are still struggling to find their footing after the pandemic, inflation, and chronic worker shortages now find themselves faced with a slew of new mandates and higher taxes. Main Street is begging Minnesota lawmakers to give them a break in 2024.”
Along with new regulations, mandates, and taxes, lawmakers also passed the largest budget – and largest budget increase – in state history, complete with $10 billion in tax increases over the next four years. As a result, state budget officials recently announced that Minnesota will experience a $2.3 billion deficit in the next budget cycle (fiscal years 2026-27).
New Laws Effective In 2023
Unpaid Parental Leave Expansion, effective 7/1/2023. Prior to this law, small employers with 20 or fewer employees were exempt from the requirement to allow employees to take unpaid parental leave (federal law continues to exempt businesses with fewer than 50 employees from similar requirements under the Family and Medical Leave Act). The exemption for part-time employees and the 12-month waiting period for new employees were also eliminated.
Noncompete Agreement Prohibition, effective 7/1/2023. Noncompete agreements, which protect employers from competitors gaining an unfair advantage by hiring their employees, are now nearly universally prohibited in Minnesota. The law contains limited exceptions for noncompete agreements involving officers, owners, and buyers during the sale or dissolution of a business. Nondisclosure, nonsolicitation, confidentiality, and trade secret agreements are also exempted.
Marijuana Employee Testing Restrictions, effective 8/1/2023. The marijuana legalization law passed during the 2023 legislative session included significant new limitations on when and why an employer can test applicants and employees, as well as restrictions on when an employee can be disciplined for using marijuana.
Employer-Sponsored Meeting Gag Rule, effective 8/1/2023. Employers are barred from requiring employees to attend meetings that involve discussion of religious or political matters, including legislation, regulation, or public policy changes that impact the business or employees. This overly broad, vague law is likely to face legal challenges on grounds that it violates federal law and the U.S. Constitution.
Metro Area Sales Tax Increase, effective 10/1/2023. The state sales tax increased by 1% in the seven-county metro area, resulting in combined state and local sales tax rates that exceed 8% in much of the Twin Cities. This includes a 0.25% for rental and housing assistance programs and 0.75% for transportation, the bulk of which goes toward light rail and other transit in the metro. Metro consumers and businesses will pay $2 billion more in sales taxes over the next four years.
New Laws Taking Effect January 1, 2024
Vehicle Registration Tab Fee Increases. Buying or renewing tabs for your car or truck will get more expensive in 2024. Drivers will see a significant increase in tab fees over the first ten years of the vehicle’s life before realizing a $5 decrease in the eleventh year and beyond. The net result is that vehicle owners will pay $790 million more for tabs over the next four years.
Earned Sick and Safe Time (ESST). This law requires that all employers provide all employees with one hour of “earned sick and safe time” for every 30 hours worked, up to a maximum of 48 hours per year, and allow employees to carry up to 80 hours of ESST at any given time. There are no exemptions based on employment status or business size. In addition, the law carries dozens of pages of fine print that employers to which employers should pay close attention (including hefty fines and employee notification, reinstatement, and workplace signage requirements). There is an exemption for labor unions in the construction trades.
Pay History Inquiry Ban. Employers are prohibited from inquiring about, considering or requiring disclosure of a job applicant’s pay history. An applicant may voluntarily and without any prompting disclose their pay history for the purpose of negotiating wages, salary, benefits, or other compensation. The law carries steep penalties and legal consequences, even for one-time mistakes.
Minimum Wage Increase. While not a new law, a new minimum wage rate goes into effect thanks to an automatic annual inflator passed into law ten years ago. Beginning on January 1, the state minimum wage rate to $10.85 for large employers, defined as having annual gross revenues of $500,000 or more. The rate increases to $8.85 for small employers, defined as having annual gross revenues less than $500,000, for the training wage paid to employees < 20 years old for the first 90 consecutive days of employment, and for the youth wage paid to employees < 18 years of age.
More Federal and State Laws Coming In 2024 and Beyond
Federal Beneficial Ownership Reporting Mandate, effective 1/1/2024. This new regulation will affect a broad spectrum of small businesses (virtually all LLCs, corporations, and entities formed under state or tribal laws with 20 or fewer employees and $5 million or less in gross annual receipts) and require them to begin filing periodic reports on their beneficial owners to the federal Financial Crimes Enforcement Network. For small businesses formed prior to 1/1/2024, initial registration must be completed by 1/1/2025. Affected businesses formed after 1/1/2024 but before 1/1/2025 will have 90 days to register, and those formed after 1/1/2025 will have 30 days to comply.
Retail Delivery Tax, effective 7/1/2024. This new tax applies to deliveries to businesses and consumers of $100 or more. It excludes delivery of food or prepared meals and does not apply to a business with less than $1 million in annual revenue. The tax will cost consumers and businesses about $190 million over the next four years.
State-Run Employee Retirement Accounts, effective 1/1/2025. 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 government panel comprised of state officials, gubernatorial appointees, and members appointed by the Minnesota Legislative Commission on Pensions and Retirement. It will be opened in phases with full implementation by December 31, 2026.
Paid Family and Medical Leave (PFML), effective 1/1/2026. The largest business mandate and biggest single tax increase in Minnesota, PFML will go into effect at the start of 2026. The program requires nearly all employers to allow nearly all employees with 20 weeks off per year for a wide range of reasons, including the employee’s medical condition, parental leave, or to care for family and anyone for whom the employee has an “expectation” to provide care. Program users will apply to and be paid via a state government agency and the program is funded by a new $1.5 billion per year payroll tax split between employees and employers. The details of the program will be worked out via regulation over the next two years.
For more information about these and other new taxes, mandates, and regulations, please visit www.nfib.com/minnesota or contact NFIB Minnesota State Director John Reynolds at [email protected].
