You may have already heard the news, but if you haven’t taken action yet, you could be falling behind in getting your business and employees ready for the big changes coming in 2026 with Minnesota’s Paid Leave Act! Be sure to keep reading this article from the team at Carefree Bookkeeping to learn how to prepare NOW for critical and time-sensitive December and January deadlines, and how to avoid potential penalties or additional financial consequences later.
The Countdown is on for Minnesota Business Owners!
Big changes are coming to Minnesota workplaces as the Paid Family and Medical Leave (PFML) program launches on January 1, 2026. It’s essential for business owners to understand the responsibilities they’ll face and the adjustments needed for a smooth transition. Below, we break down what Minnesota’s new Paid Leave Act is, how businesses can prepare now, which deadlines matter most, and the possible repercussions for missing them.
What’s the Minnesota Paid Leave Act?
Minnesota’s Paid Leave Act is designed to help employees during life’s major events—like medical challenges, welcoming new family members, or stepping up for loved ones in times of need. Every employer and employee in Minnesota will likely be impacted, so understanding coverage details is a must.
- Medical Leave: Up to 12 weeks for your own health needs (including pregnancy, childbirth, or recovery).
- Family Leave: Up to 12 weeks for bonding with a new child, caring for a family member, military leave, or personal safety issues.
- Combined Maximum: If someone qualifies for both in a year, total leave can reach 20 weeks.
- Coverage: Almost every business and worker in Minnesota, regardless of company size or hours worked. Self-employed folks and independent contractors can opt in.
Key Deadlines & Immediate Steps for Employers
With any new law, deadlines matter—and Minnesota’s Paid Leave Act is no exception. Proper planning will help you stay ahead and avoid last-minute stress. Here are the top action items and their dates you don’t want to miss.
- December 1, 2025: By this date, every employer must notify its Minnesota employees about their new Paid Leave benefits and get a signed acknowledgment. Click here to download a copy of the Minnesota Paid Leave template for employee communication use. The attached template is an official form provided in Word format for convenience and easier completion of fillable fields or minor formatting changes. If you don’t have the ability to open a Word document, Carefree Bookkeeping clients can reach out to our office for further assistance.
- Hang the required Paid Leave poster.
- Designate a Paid Leave Administrator by January 1, 2026.
- Register your business accounts with Minnesota Unemployment Insurance and Paid Leave portals.
- Update Employee Handbooks with compliant policies, and track Earned Sick and Safe Time.
- Payroll and system prep: Connect your payroll software to your Minnesota UI Account so reporting goes smoothly.
If you have fewer than 30 employees, you may qualify for two annual grants of up to $3,000 each (max $6,000/year) to help cover costs when employees take Paid Leave.
How Premiums & Deductions Work
Understanding how the costs are split—and how much you owe—will help keep your payroll and budgeting on track. Take a closer look at how premiums are calculated and deducted.
- Premium Rate (2026): 0.88% of each employee’s wages.
- Employers pay at least 50% (can cover more if desired).
- Example: For a $50,000/year employee, that’s $220 split evenly ($110 each).
- Small Employer Rate: If you have fewer than 30 employees, the rate drops to 0.66%.
- These deductions work just like Social Security or Medicare—taken out of paychecks and sent to the state.
Tax & Payroll Changes
Because payroll details can get complicated—especially with new rules—it’s important to know what’s deductible, how employee taxes are handled, and the impact on yearly paperwork. Here’s what to expect with the new program.
- Premiums: Employer-paid portions are tax-deductible as an excise tax. If you go above the minimum requirement, the extra counts as wages and must be included on an employee’s W-2.
- Employee-paid premiums: Taken out after taxes, but employees can deduct them as state income tax if they itemize.
- Weekly benefits: When employees take Paid Leave, those payments count as taxable income. They can choose to have taxes withheld automatically (5% state and 10% federal).
- Family leave benefits: Not wages, so not subject to payroll taxes—reported via a 1099.
- Medical leave benefits: Part is treated as wages (50% for most employers, 33% for small ones) and is subject to withholding, FICA, and FUTA payroll taxes; the rest is not taxable.
- Employers are responsible for correct reporting and updating pay documents (watch Box 14 on W-2s—use labels like “MNPFML”).
Employee Rights & Leave Details
The Paid Leave Act is intended to protect Minnesota employees who need time off for health or family reasons, so it’s important to understand their rights. Here’s how the leave and job protections work.
- Employees can take up to 12 weeks per policy year for family or medical leave—split as needed.
- Leave may replace up to 90% of wages, with the maximum benefit set at the state average weekly wage ($1,423 for 2026).
- Employees can choose to use PTO or Sick Leave for extra pay, but employers can’t require this.
- Job protection starts if the employee has been at their job at least 90 days.
- Employers must keep up health insurance payments while an employee is out on leave.
- Retaliation is strictly prohibited—no negative treatment or interference for those who use Paid Leave.
What If You Don’t Follow the Rules?
Missing requirements can come with more than a slap on the wrist—businesses can face fines, penalties, or even legal action. Here’s what can happen if you don’t comply.
- Failing to notify employees, hang the required poster, or comply with premium payments puts your business at risk. Complaints may be handled by the Minnesota Department of Labor and can result in penalties or fines, plus possible legal action for violation of employee rights.
- Remember: Even businesses with just one employee (like S-Corps) must participate.
Can You Use a Private Plan Instead?
Some business owners may want flexibility in providing benefits. You can opt for a private plan—if you meet all requirements. Here’s what you should know before switching.
- Must be state-approved.
- Can’t cost employees more than the state plan.
- Must include all job protection provisions.
- Require regular wage and leave reporting—even if state premiums aren’t paid.
Getting Prepared, Staying Compliant
Getting ready now will save you headaches—and possible penalties—down the line. By completing these final tasks, you’ll be set up for success as Minnesota transitions to Paid Family and Medical Leave.
- Post the official Paid Leave poster and give each employee a notice by December 1, 2025.
- Designate your Paid Leave Administrator.
- Make payroll and tax updates.
- Use available small business grants if qualified.
- Update company handbooks and policies.
By tackling these steps, business owners can smoothly transition to Minnesota’s Paid Family and Medical Leave program. If you have questions, don’t hesitate to reach out to Carefree Bookkeeping or consult the Minnesota Department of Employment and Economic Development. Preparation and open communication will help you support your team and protect your business!
Ready to Prepare for 2026 with Confidence?
If you need help understanding your responsibilities, updating your payroll system, or communicating clearly with employees, the team at Carefree Bookkeeping is here to support you every step of the way.
Start with a visit to our contact page to request a Discovery Call and get customized guidance and resources for your business.
Let’s work together to make sure you’re fully ready for Minnesota’s new Paid Leave Act!
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