Supporters of paid family and medical leave rally in front of the House Chamber on May 2, 2023. Photo by Andrew VonBank/Minnesota House Info.
Minnesota’s new paid leave program will launch with a 0.88% payroll tax in January 2026, which is 25% higher than what was originally proposed two years ago when the Legislature passed the law.
The Reformer first reported on the need for a higher rate last year, and the Department of Employment and Economic Development confirmed Friday that paid leave remains on track to launch in 2026 with a 0.88% payroll tax. The Democratic-Farmer-Labor trifecta originally passed the bill in 2023 with a 0.7% payroll tax, which is split between workers and employers.
The state’s paid leave program guarantees Minnesota workers can take 12 weeks of paid family leave and 12 weeks of paid medical leave per year, capped at 20 weeks in a single year.
DEED will do rate adjustments each year after receiving an annual actuarial analysis to investigate the solvency of the program. Employees will pay up to half of the payroll tax — 0.44% of their taxable wages in the first year — but an employer can choose to assume some of their employee’s cost.
Last year, an actuarial analysis conducted by management consulting firm Milliman proposed a 0.88% payroll tax in the first year because “there is greater uncertainty when the program begins, and additional margin seems prudent when benefits become effective.”
The paid leave law states that DEED cannot raise the payroll tax above 1.2%.
The Minnesota Legislature in 2023 allocated $668 million from the general fund in seed money so employees can access benefits as soon as they begin paying taxes for them, and the state also kicked in $128 million for start-up costs.
The actuarial analysis last year estimated that the new 0.88% payroll tax will bring in over $300 million in additional revenue in the first year compared to the original 0.7% rate. In the first year, they estimated the state will distribute about $1.6 billion in benefits through the program.
The analysis estimates that next year the state will receive nearly 132,000 paid leave claims, including over 48,000 in family leave claims and more than 83,000 in medical leave claims.
House Republicans, who are currently in control of the lower chamber until a March 11 special election that’s expected to lead to shared control, are currently forwarding a bill that would delay the paid leave program by a year.
DEED told lawmakers delaying the program another year is unnecessary, but Republicans say businesses need more time to comply. Some school districts have also expressed reservations about the new law.
Last year, DFL lawmakers made a clarification to the law that created retroactive payments for both family and medical leave upon confirmation of need. For example, if a person broke their hip, the department will need verification from a health care provider that the person needs leave for at least seven days. After verification, DEED will pay out the first week of leave retroactively.
“In our families, workplaces and communities, Minnesotans take care of each other,” DEED Commissioner Matt Varilek said in a statement. “But for too many, missing a paycheck to provide care leads to missing rent or not being able to put food on the table. Paid Leave means that Minnesotans no longer have to choose between care for themselves and their families, and their livelihood.”