In 2023, in spite of NFIB’s objections, the Minnesota Legislature passed legislation that imposed a government-run Paid Family and Medical Leave (PFML) mandate on small business owners and their employees. Despite ongoing efforts to make common sense modifications to the PFML mandate, the program is currently scheduled to go into effect on January 1, 2026.

Small businesses will have several new responsibilities under this mandate, and NFIB wants to ensure that they have the necessary information. In addition to the fundamental basics of the mandate, there are several other developments that small business owners should be aware of. The Minnesota Department of Employment and Economic Development (DEED) has an Employer Resource Toolkit available here.

DEED Employer PFML Checklist

With the launch of the MN PFML mandate less than 100 days away, it is important for employers to take the steps necessary to prepare. DEED is advising employers to take the following steps to ensure compliance as of January 1, 2026.

1. Set Up Accounts – Employers will need to set up both an Employer Account and a Paid Leave Administrator Account to comply with the PFML mandate.

• Register for an Employer Account (if you don’t already have one) at org. This account will be used to submit wage detail reports and to pay the PFML payroll tax.
  
• Designate a Paid Leave Administrator in your Employer Account. This is the person who will be the primary contact at your business regarding the Minnesota PFML program. This website will walk you through the steps to designate a Paid Leave Administrator.
• Create a Paid Leave Administrator Account. This account will be used to review leave applications and view paid leave determinations. Visit mn.gov to create a Paid Leave Administrator Account.

2. Notify Employees – Employers have new notice requirements under the PFML mandate. These requirements include (1) posting a notice of benefits available under the PFML mandate in “a conspicuous place” and (2) providing employees with individual notice regarding the availability of PFML benefits.

• Paid Leave Workplace Poster – By December 1, 2025, Employers must post a Paid Leave workplace poster in a place that is easily seen by employees. The poster must be in both English and any other language that is primary for five or more workers. Posters can be downloaded from the Minnesota Paid Leave website. NOTE: This posting requirement also applies for employers who opt to provide paid leave through an approved equivalent plan. 
  
• Individual Employee Notices – By December 1, 2025, employers are also required to notify individual employees in their primary language. Employees must provide an acknowledgement that they received the notice, which can be done by signing a form, acknowledging receipt electronically, or in another way determined by the employer. DEED has provided a sample notification (including instructions) in their PFML Employer Resource Toolkit. NOTE: If you choose to use an approved equivalent plan you still need to provide individual notice to employees.

3. Set Workplace Policies – In addition to the above requirements, DEED has provided other considerations for employers regarding workplace policies, including how to split the payroll tax, setting up a clear notification process, and setting intermittent leave policies. More information about these considerations can be found on the Paid Leave website.

Approved Equivalent Plan Selection

Minnesota law allows employers to meet the requirements of the Minnesota PFML mandate by substituting an equivalent plan that provides their employees with coverage that meets or exceeds the coverage offered by the State. Employers who are interested in substituting an equivalent plan may elect to do so with either (1) an approved insurance carrier plan or (2) a self-insured plan. Information on both options, as well as additional details, can be found here: Equivalent Plans for Paid Leave / Minnesota Paid Leave.

Employers can submit a request at any time, and DEED will review and approve requests on a rolling basis. However, it is recommended to submit requests one quarter before the plan is to take effect. As such, DEED is encouraging employers to submit requests by November 10, 2025, if they want their plan to be in place when the program launches on January 1, 2026. Employers that do not pick a private plan will automatically be placed in the state program.

Tax Treatment of PFML

DEED’s Paid Leave Division issued a document with answers to questions regarding how Minnesota Paid Leave will interact with state and federal taxes for individuals and employers. Read the full guidance here.

DEED’s guidance cites Internal Revenue Service (IRS) Revenue Ruling 2025-4, which provides explanation for how the federal government will treat the payroll tax and benefits received from paid leave programs for income tax purposes. Some key aspects of this guidance include:

Employer Payroll Tax Contributions

• Employers may deduct their required portion of the payroll tax as an excise tax under IRC Section 164.
• If an employer chooses to pay more than the required minimum share of the payroll tax, they may deduct the additional contribution as an ordinary and necessary business expense under IRC Section 162. This additional contribution must be included as wages on the employee’s W-2.

Employee Payroll Tax Contributions

• An employee may deduct the full amount of the payroll tax that they pay, or that the employer pays on their behalf (up to .44% of wages) as state income tax under IRC Section 164. This only applies if the employee itemizes deductions.
• If an employer pays more than the required minimum portion of the payroll tax, the additional amount is additional compensation to the employee and is included in the employee’s federal gross income as wages.

W-2 Reporting

• The employee’s portion of the payroll tax is a post-tax deduction from their pay.
• The employer’s required share of the payroll tax does not affect the employee’s taxable wage as reported in W-2 Boxes 1, 3, and 5.
• Employer contributions that exceed the required share must be reported as wages paid.

Taxation of Benefits

• When employees apply for PFML benefits, they will have the option to have state and federal taxes withheld from their weekly benefit.
• Family Leave Benefits – these benefits will be treated as non-wage benefits and will not be subject to employment taxes. Paid Leave will report these benefit amounts to the IRS annually and issue a 1099 to the person taking leave.
• Medical Leave Benefits – the taxation of these benefits will be treated differently than family leave benefits.
  • The amount of benefits attributable to the employer contribution will be treated as wages and are subject to income tax withholding and FUTA taxes. Employers are required to pay the employer portion of the Social Security and Medicare taxes on the taxable portion of the medical benefits.
  • The amount of benefits attributable to the employee contribution will be excluded from the employee’s federal gross income and is not taxable.

PFML Payroll Tax Calculator

DEED has created a payroll tax calculator that employers can use to estimate the costs of the PFML mandate. NOTE: This payroll tax calculator only provides an unofficial estimate of total payroll tax costs. An employer’s actual payroll tax liability will be based on wage details reported to Minnesota Paid Leave.

As a reminder, the payroll tax for 2026 is set at 0.88% and is applied to each employee’s wages up to the annual maximum FICA wage base. After the initial year, the payroll tax will be set annually by July 31 for the following year. The payroll tax rate will be adjusted each year and will be based on an actuarial study to determine the amount needed to keep the program solvent. The payroll tax cannot exceed 1.1% without legislative approval. 

Employers are required to pay at least 50% of the total payroll tax and may choose to deduct the rest from employee pay. Payroll tax payments will be submitted on a quarterly basis through the employer’s UI/Paid Leave account. The first payroll tax payment is due on April 30, 2026. Employers can begin to deduct the payroll tax from employee paychecks starting January 1, 2026.

Additional Resources

The Paid Leave Division at DEED has hosted several webinars that are aimed at informing employers about their responsibilities under the PFML mandate. A list of upcoming events and recordings from previous webinars can be found here.

Small business owners can also visit DEED’s Minnesota Paid Leave website for a FAQ and other additional resources.