Changes to Paid Sick and Paid Leave Mandates Will Impact Minnesota Small Businesses
The 2024 Minnesota Legislative Session came to a chaotic conclusion for the year at midnight on Sunday, May 19.
This is the third volume in a series outlining highlights, lowlights, and things small business owners should know about the 2024 sessions.
You can read the first two volumes here:
Minnesota 2024 Legislative Session Recap, Vol. 1 – NFIB
Minnesota 2024 Legislative Session Recap, Vol. 2 – NFIB
In this edition, we’ll look at key changes made this year to the “Earned Sick and Safe Time” and “Paid Family and Medical Leave” mandates.
Earned Sick and Safe Time (ESST) Changes
Lawmakers love to constantly tinker with and expand regulations to achieve new ends or address unforeseen circumstances. This is the case with ESST, the paid sick time mandate that took effect on January 1, 2024 (see HF 5247, Art. 11).
Key changes to the program include:
Penalties: Employers who do not provide the minimum required ESST hours or do not allow use of ESST as permitted by the law are subject to a penalty in the amount equal to the time not provided or not permitted to be used in accordance with the law plus an equal amount as liquidated damages.
Further, if an employer does not maintain sufficient records to document the provision of ESST, the employer is liable to the employee for 48 hours of ESST plus an equal amount as liquidated damages. Records must be kept for three years.
ESST Balance & Use Statements: ESST hours available and used in the previous pay period are no longer required to be included on the employee’s earnings statement. However, at the end of each pay period, an employer must provide this information in writing or electronically.
An employer is permitted to provide the information through an electronic system that is accessible to each covered employee, provided the employee has access to an employer-owned computer during work hours where they can view and print.
Employee Base Rate Clarifications: We received many questions about the rate of pay owed for ESST used by employees paid in whole or part through commission. The new law defines base rate as:
– for hourly employees, the same rate received per hour of work
– for hourly employees with multiple hourly rates, the rate that would’ve been paid for the period in which leave was taken
– for salaried employees, the same rate as guaranteed to the employee as if they’d not taken leave
– for employees paid solely on a commission, piecework, or any basis other than hourly or salary, a rate no less than the greatest applicable local state, or federal minimum wage.
The law further excludes commissions, shift differentials, overtime premiums, weekend or holiday premiums, bonuses, or gratuities from an employee’s base pay.
Limited Agricultural Employee Exclusion: Employees who provide physical labor on or management of a farm for a farmer, family farm, or family farm corporation for 28 days or less each year are excluded from the definition of employee and are not eligible for ESST.
Additional ESST Use: ESST is now permitted to be used for arranging or attending a funeral, or to address financial or legal matters arising after the death of a family member.
Safe Time Documentation: When the required documentation for using ESST for absence due to domestic assault, sexual assault, or stalking is not available in a reasonable time or without extra expense, an employer must accept a written statement from the employee indicating that ESST is or will be used for that reason.
ESST Time Increments: Employees are permitted to use ESST in the same increment of time for which they are paid. An employer is not required to permit leave in increments of less than 15 minutes but cannot require an employee to use ESST in increments longer than four hours.
In other words, an employer cannot make an employee take ESST in whole day increments. Employees must be permitted to use ESST in increments of a half day or less.
Sick Time/PTO Exceeding Minimum ESST Requirements: The new law requires all paid time off for personal illness or injury to meet the same standards as ESST.
ESST requires a minimum of 48 hours per year accrued by or granted to each employee, to be used on the basis and conditions in law. We understand this provision to mean that if you provide, say, 80 hours of ESST or PTO, the terms and conditions of ESST apply to the 32 hours of leave above the 48-hour minimum.
This does not apply to short- or long-term disability or other salary continuation benefits, but this language appears headed for conflict with the PFML mandate.
Paid Family and Medical Leave (PFML)
NFIB Minnesota has long warned the PFML Mandate is financially unsustainable and an insurmountable workforce burden for small business owners. Our repeated warnings about the program’s finances proved accurate when an independent actuarial analysis was released in October 2023.
The state’s PFML Math got worse this year, as legislation to resolve ambiguities in the original law increased the annual program cost by hundreds of millions more.
Two years ago, the Walz Administration projected PFML to cost $830 million per year with a 0.7% payroll tax.
The annual program cost is now projected to be $1.6 billion per year with a 0.93% payroll tax. These numbers are likely to rise again before the program launches on January 1, 2026.
The main factor driving the new price tag is language in this year’s legislation allowing payment for the first week of all claims once eligibility is verified. Previous models and financial projections were bizarrely based on other first week scenarios that never reflected the earlier legislation or the original PFML law.
Other key changes to know are explained below (for complete text, see HF 5247, Art. 11). We also encourage you to sign up for PFML Employer Updates from MN DEED: Employers / Minnesota Paid Leave (mn.gov).
PFML Tax Rate Changes: The new law allows DEED to change the PFML Tax rate for the first and all subsequent years to any rate less than the statutory cap of 1.2% of qualifying payroll.
DEED must base the tax rate off “historical experience and sound actuarial principles,” and is required to obtain an actuarial study every year prior to setting the rate.
DEED must publish PFML Tax rate changes no later than July 31 of the year prior to which it takes effect.
Small Business PFML Tax Break: The original PFML law included a limited payroll subtraction from the PFML Tax for employers with fewer than 30 employees.
This year’s bill modifies that tax break, replacing the limited subtraction with – effectively – a cap on small employer’s PFML Tax liability at 50% of the standard employer rate (the minimum amount an employer must pay).
In other words, if the total PFML Tax rate is 1%, the standard employer rate is .5%. Under this year’s change, the small employer tax rate is .25%. This rate applies to employers with fewer than 30 employees and an average employee wage less than 150% of the statewide average wage (~$105,000 in 2024).
Covered Employment: Lawmakers altered the definition of covered employment by eliminating a provision stating that an employee who works less than 50 percent of of the calendar year in the state is covered if their employment is controlled and directed by a company based in Minnesota.
In its place is broad authority for the Minnesota Department of Employment and Economic Development to include basically anyone in the definition of covered employment through rulemaking. How DEED uses this authority will significantly impact small employers on the state’s borders or who operate virtually, as well the overall cost of the program.
Family Member: The original PFML law allows for an employee to use extended leave for anyone with whom they have a relationship that creates an expectation to provide care. That was amended to specify the relationship must be “personal” but no definition is given for what that means and this loophole remains wide open for fraud and abuse.
Employer Notification: NFIB has long cautioned that small employers will suffer from the lax notice requirements imposed on employees in the PMFL law. This year, the law was amended to require that all employers be notified within five days of an employee filing a claim for PFML benefits.
Appeals: The original PFML law did not clearly allow for an employer to participate in the eligibility determination process or appeal an eligibility determination. This was concerning as employers will often have key information that can prevent fraud and abuse.
This year, NFIB was successful in obtaining the right to participate and appeal for employers.
Private Plan Substitution: This year’s law makes numerous changes to private plans, which may be substituted for the state PFML plan. Private plans are highly regulated self-managed or third-party policies that provide identical or greater benefits to covered employees.
Among the many changes is a requirement that former employees be covered by a private plan until they find new employment or 26 weeks following separation, whichever occurs first.
This requirement will have a significant impact on the cost of private plans.
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This is the third in a series of recaps on the 2024 Minnesota Legislative Session. Future installments will focus on individual topics of interest to small business owners.
