Paid family leave law brings major changes for employers

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The Minnesota Paid Family and Medical Leave law is effective Jan. 1. It introduces major changes for employers, bringing new obligations. Preparation is essential to ensure compliance and avoid penalties. Two Minnesota attorneys, James Kremer and Emily Atmore, describe what is on the horizon so that businesses can be sure to comply.

The Paid Family and Medical Leave law (PFML) allows up to 20 weeks of leave and paid benefits to take care of matters such as surgeries, pregnancy, caring for family members, and more. This includes up to 12 weeks of personal medical leave and 12 weeks of family leave, with a maximum of 20 weeks total. Employees will receive part of their normal pay. It covers many Minnesota workers, though there are some exceptions for workers such as seasonal hospitality workers and federal employees.

Employers must provide timely notice to employees and remember that non-Minnesota residents who work 50% or more of their time in Minnesota are eligible for PFML benefits. These employees must be included in quarterly wage reports, and premiums must be paid on their full annual wages. Out-of-state employers may still be subject to reporting, premium, and other requirements depending on where their employees work and live. Employers cannot require employees to apply for PFML benefits or to use sick time or PTO before applying. This decision is solely up to the employee.

Failure to comply can come with steep penalties. Failure to meet employee notice requirements can result in a $50 per employee fine for a first violation and $300 for each repeat violation. Employers may also be penalized for colluding with applicants to fraudulently obtain benefits or making false statements. Additionally, failing to disclose material facts to the state can lead to further penalties.

Atmore, employment and labor law attorney at Stoel Rives, says that the most common question that she has received from employers of all types and sizes is whether the new law applies to them.

“Smaller employers often do not realize the law applies to nearly all Minnesota employers, unlike other Minnesota employment laws which have exemptions for small employers,” Atmore explains. “Multi-state employers are also sometimes surprised to learn that the law applies to all employees who work at least 50% of their time in Minnesota, including remote workers in Minnesota.”

She reports that she has been very busy lately fielding questions about the new law.

“Even multi-state employers who have navigated the enactment of other state-run paid leave programs have shared their anxieties about correctly complying with Minnesota’s robust paid leave program, which offers a combination of longer leave duration, higher wage replacement, and job protections, making it one of the most comprehensive programs of its kind in the country,” Atmore says.

Businesses may feel unprepared for the administrative burden of quarterly reporting and premium payments, but Kremer advises them, “Don’t panic.”

“The Department of Labor and Industry has clarified that quarterly wage detail reports submitted by employers for unemployment insurance purposes satisfy the PFML wage reporting requirements,” says Kremer, a partner and employment attorney at DeWitt LLP. “If you have employees who are not covered under Minnesota unemployment insurance but are engaged in covered employment under the PFML Act, you will need to take some simple steps to set up an employer account for paid leave at uimn.org.”

Small businesses have unique concerns. Kremer explains that small employers should first confirm that it meets the definition of a small employer under the law.

“The small-employer premium rate for 2026 is 0.66% of wages. The small employer must pay at least 0.22% of wages as its share of the premium and may deduct up to 0.44% from employee wages to fund the employee share of the premium,” Kremer says. “Small employers, like other employers, must comply with the employee notice, quarterly wage reporting, and premium submission requirements.”

Additionally, small employers can apply for state grants to offset costs from hiring temporary workers or increasing wages due to PFML use.

With many months rolling this law out, most employers should be aware of the coming changes and hopefully prepared. Still, with questions about applicability and scope of the law, some employers are still behind. For instance, they may have missed the Dec. 1 deadline to notify employees of the upcoming paid leave law. If so, Atmore says that employers should do so as soon as possible. “Employers are required to make a good-faith effort to notify employees in a timely manner so that employees are aware of paid leave benefits and obligations, including employee payroll tax premium collection, before January 1, 2026,” Atmore explains.

Employers should use the state’s model notice, collect employee acknowledgment of receipt, and retain those acknowledgments in their records, including for all new hires within 30 days of hire. Employers must also post the state’s standard poster in English and in any other language that is the primary language of five or more employees.

Kremer says that employes should review their leave policies and related employee handbook provisions. He states that employers should ensure that leave notice requirements for reasons covered by the new law do not require greater or more onerous advance notice than what the statute permits. Specifically, the statute requires 30 days’ advance notice only when the need for leave is foreseeable.

Additionally, Kremer advises that employers “revise their policies to require employees to provide the employer with the certification submitted to the state when applying for PFML benefits.” He also suggests modifying “any language in existing leave policies or employee handbooks requiring an employee to exhaust available company-provided sick time or PTO” to make it obvious that this does not apply to leave under the statute.

If a company already offers vacation pay, sick pay, or PTO pay, an employee can choose to use these instead of PFML. The choice is up to the employee. Employees who use company leave benefits during a covered leave must report that usage to the state.

“The intent appears to be to prevent the ‘stacking’ of employer-provided leave benefits and PFML benefits for the same event in a way that would extend paid leave beyond the statutory limits.” Kremer explains.

Kremer advises that employers clearly document the employee’s decision to use company-provided PTO. Kremer explains that employees, subject to the employer’s short-term disability  policy can receive short-term disability benefits in addition to PFML benefits. However, the short-term disability benefit may be reduced so the employee does not receive more than his or her usual wage during the leave period.

“Many large employers that already have robust paid leave programs in place are learning that there are significant steps needed to get their existing equivalent plan approved by the state and that the deadline to have equivalent plans approved by January 1, 2026, has passed,” Atmore says. “Until employers receive state approval for their existing paid leave plan, employers are required to abide by the state-plan requirements, including collecting employee premiums beginning Jan. 1, 2026.”

Both attorneys agree that there will be some bumps in the road as businesses try to comply.

“I am hopeful the state will show some grace as employers make good-faith efforts to understand and comply with the law,” Kremer says. “I believe the greatest initial legal and litigation risks will stem from misunderstandings regarding coverage in cross-border employment situations, as well as the statute’s broad retaliation and interference prohibitions, which extend to coercive conduct that could potentially include careless negative comments about PFML that implicitly pressure employees to refrain from seeking benefits.”

“I think that grace and understanding are needed from both sides while everyone tries their best to implement Minnesota paid leave,” Atmore echoes.

However, Atmore points to recent news about potential billions in fraud in Minnesota as an impetus for lawmakers to get this program right from the start. “For employers, this exposes them to the risk of failed compliance, enforcement measures, and steep penalties and legal action,” Atmore says.

Related: Minnesota’s new meal and rest break law takes effect Jan. 1