Five Key Takeaways for Minnesota Employers:
- Early data from the Minnesota Department of Employment and Economic Development (DEED) show that Paid Leave is reaching workers across income levels and geographic areas: 54% of applicants earn less than $78,000, and 44% live outside the seven-county metro area. That reach may support Paid Leave’s long-term value for workers, families, and the state.[1]
- Benefit payments have exceeded premium collections to date, raising questions about long-term funding.
- Most leave is continuous, but employers report that intermittent leave is especially disruptive to staffing and scheduling.
- New federal payroll-tax obligations for employer-funded medical-leave benefits begin in 2027.
- Legislative changes are possible in 2027, and a pending lawsuit creates separate uncertainty.
With Minnesota’s Paid Family and Medical Leave program (“Paid Leave”) now ten months into its first year, there is more to discuss than the rules on paper. This updated installment of our 2025 three-part Employer Advisory Series on understanding employer obligations under the Minnesota Paid Family and Medical Leave Act takes a practical look at how the law is working so far—its benefits, growing pains, and implications for the workplace. Our goal is to keep employers and other interested parties informed as Paid Leave takes shape and to help them look ahead to the 2027 Minnesota legislative session, when Paid Leave is likely to be part of the conversation.
PAID LEAVE IS NOW PART OF ROUTINE WORKFORCE MANAGEMENT
Program Today:
Paid Leave took effect January 1, 2026. Ten months in, employers are managing claims alongside their other leave obligations. The overview below revisits Paid Leave’s core requirements; for a more detailed explanation, see our 2025 three-part Employer Advisory Series on understanding employer obligations under the Minnesota Paid Family and Medical Leave Act. The law applies to nearly all employers and imposes no tenure requirement for benefits, subject to a minimum earnings threshold. It provides up to 12 weeks of family leave and up to 12 weeks of medical leave, with a combined annual maximum of 20 weeks. (Minn. Stat. § 268B.04, subd. 5)[2] In general, employers must fund at least half of Paid Leave through payroll premiums, with employees paying the remainder through wage deductions. (Minn. Stat. § 268B.14, subd. 3) There is no waiting period for benefits. Anti-retaliation protections apply from the start of employment, while the right to job reinstatement begins 90 days after hire. (Minn. Stat. § 268B.09, subds. 1, 6)
Early Uptake:
Through June 30, 2026, the state reported 126,373 applications and 74,687 approvals. Medical leave accounted for 50% of applications, bonding leave for 36% and caring leave for 14%. The average weekly benefit was $1,083. Most leaves—87%—were continuous; 11% were intermittent, and 2% involved reduced schedules.[3]
THE LONG-TERM VALUE FOR EMPLOYEES AND THE STATE
Paid Leave brings administrative and staffing challenges, but it also offers meaningful benefits for employees and Minnesota’s workforce.
For Employees:
Paid Leave helps workers cover expenses while caring for a newborn or a seriously ill family member or recovering from their own illness. Benefits replace wages on a tiered scale, reaching up to 90% of average weekly wages for the lowest earners—a measure of financial breathing room during an absence. (Minn. Stat. § 268B.04, subd. 3) Reinstatement rights, which begin 90 days after hire, can also help eligible workers return to their jobs after leave, while anti-retaliation protections apply throughout employment. (Minn. Stat. § 268B.09)
For the State of Minnesota:
Paid Leave can help workers stay employed through medical and family disruptions. A statewide program also gives small businesses access to a benefit they may not be able to fund on their own. Over time, these benefits may support workforce retention and reduce some families’ need for public assistance. DEED notes that, before Paid Leave, only 27% of U.S. workers had access to paid family leave. Lower-wage workers, Black, Indigenous, and other people of color (BIPOC) who are parents, and people in rural areas were among those often missed.[4]
DEED describes the law’s purpose as improving “the health and well-being of all people and businesses in Minnesota.” Paid Leave’s goals span three areas: economic stability, through financial support and job security for families and individuals; workforce health, by allowing workers to take leave for their own care or a family member’s; and business equity, through equitable services intended to help employers recruit, retain, and invest in their workforce.[5]
VALUABLE COVERAGE, REAL OPERATIONAL FRICTION
What Is Working:
For employers, Paid Leave offers some practical advantages. Employers may require qualifying Paid Leave to run concurrently with leave taken for the same purpose under the federal Family and Medical Leave Act (FMLA) and Minnesota’s pregnancy and parental leave law, reducing overlapping leave periods. (Minn. Stat. § 268B.27, subd. 1) Continuous leave, which accounts for most claims, is generally easier to plan around than recurring intermittent absences. Employers are not required to allow more than 480 hours of intermittent Paid Leave in a 12-month period and may require the remaining leave to be taken continuously. (Minn. Stat. § 268B.085, subd. 3) Temporary relief from the Internal Revenue Service (IRS) simplified federal tax withholding and reporting for employer-funded medical-leave benefits during 2026.[6]
Where Employers Are Struggling:
Employers report difficulty covering absences, coordinating Paid Leave with other leave laws, managing state processing delays, and updating policies. Intermittent leave can be particularly challenging: recurring absences affect schedules, project deadlines, timekeeping, payroll, and the workloads of employees who remain on the job. The Minnesota Chamber of Commerce’s March 2026 Paid Family and Medical Leave (PFML) user survey echoed these themes. Nearly 700 employers responded between February 6 and March 1, 2026, reporting administrative burden and confusion, slow approvals, inconsistent communication, and staffing disruption—particularly when leave was intermittent. Forty-two percent of respondents reported a filed claim, and many said the biggest impact was not the payroll tax but the difficulty of covering absences.[7] Nearly 78% of respondents had fewer than 100 employees, so the results skew toward smaller employers.[8] The survey measures employer experience and sentiment and should be read in that light. The Chamber’s president has said the rollout itself went relatively well, even as Paid Leave remains difficult to administer.[9]
2027 BRINGS TAX COMPLEXITY—AND POSSIBLE CHANGE
Funding Pressure:
Early spending has raised questions about Paid Leave’s funding. Early data showed approximately $598 million paid to about 75,000 approved applicants, compared with $344 million in initial premium collections.[10] Paid Leave used much of its $668 million startup fund, reportedly leaving about $70 million.[11] Officials expect demand to moderate as pent-up medical needs and bonding claims for children born in 2025 decline. Retroactive eligibility for parents who welcomed a child in 2025 was a major driver of the early surge; whether easing demand will relieve funding pressure remains uncertain. DEED has set the joint premium rate at 0.88% for 2027, unchanged from 2026 and within the statutory ceiling of 1.1% of taxable wages. (Minn. Stat. § 268B.14, subd. 7)[12]
Taxes, Legislation, and Litigation:
Beginning in January 2027, once the IRS transition relief ends, the portion of state medical-leave benefits attributable to employer contributions is expected to be treated as wages subject to federal employment taxes—Social Security, Medicare, and federal unemployment tax—and to third-party sick-pay withholding and reporting rules.[13] Employers will need to coordinate with their payroll providers on Form W-2 reporting and the associated tax payments. Family-leave benefits receive different federal tax treatment: they are included in the employee’s gross income but are not treated as wages and are reported on a Form 1099 rather than a Form W-2.[14]
Resources for 2027 Tax Readiness:
Employers do not have to navigate these changes alone. The following official resources offer a useful starting point for conversations with payroll providers and tax advisers:
- Minnesota Paid Leave: Taxes and Paid Leave — A practical FAQ on the tax treatment of benefits and premiums, Form W-2 reporting, and the transition from 2026 relief to the requirements expected in 2027. Many answers address 2026 specifically, so check for updates before applying them to 2027.
- IRS Notice 2026-6 — The primary authority extending specified medical-leave withholding, employment-tax and reporting relief through calendar year 2026. The extension does not cover an employer’s voluntary payment of the employee’s required contribution share.
- IRS Revenue Ruling 2025-4 — The underlying federal guidance on contributions, benefits and related reporting under state Paid Family and Medical Leave laws. Read it together with Notice 2026-6 to distinguish the substantive rules from the temporary relief.
- IRS Publication 15-A, Employer’s Supplemental Tax Guide, Section 6: Sick Pay Reporting — A technical reference for payroll teams on third-party sick-pay withholding, tax deposits, and reporting, including Forms W-2, 941, 940 and 8922. Use the edition applicable to the payment year and check for updated 2027 guidance.
Resources reviewed November 9, 2026. Employers should monitor for further IRS relief or implementation guidance and confirm with their payroll providers who will handle benefit information, tax payments, and reporting.
The 2027–2028 legislative session convenes January 12, 2027, and will set the state’s next two-year budget.[15] The 2027 session may bring proposals addressing funding, premiums, intermittent leave, administration, or technical issues. The Office of the Legislative Auditor’s May 2026 background paper noted that legislators and members of the public have raised questions about Paid Leave’s effectiveness, fraud controls, and costs, and suggested revisiting a possible evaluation in fall 2026 or spring 2027.[16] No legislative changes are certain.
The Minnesota Chamber of Commerce has said it will advocate for targeted reforms, including fewer weeks of leave, narrower eligibility, adjusted benefit levels, and stronger small-business provisions.[17] Separately, a Ramsey County lawsuit challenges the law’s enactment and employer burdens; an adverse ruling could require legislative action.
For employers, practical next steps don’t have to wait for the legislative debate. Consider training managers, reviewing leave policies, confirming payroll readiness for 2027, and establishing a plan for covering absences. A little preparation now can make the next chapter easier to navigate.
If you have questions about compliance with Minnesota’s Paid Leave program, please contact Mary Ellen Reihsen at mreihsen@hjlawfirm.com or 952-460-9275.
[1] Minnesota DEED, “After Six Months, State Paid Leave Program is Supporting 75,000 Minnesotans” (July 7, 2026), https://pl.mn.gov/news/after-six-months-state-paid-leave-program-supporting-75000-minnesotans (accessed Nov. 3, 2026). [2] Minnesota Paid Family and Medical Leave Law, Minn. Stat. ch. 268B (2026) (see in particular §§ 268B.04 (eligibility, benefit amounts and maximum duration), 268B.085 (intermittent leave), 268B.09 (employment protections), 268B.14 (premiums) and 268B.27 (relationship to other leave)). [3] MPR News, “As Minnesota paid leave program hits half-year mark, 75,000 have already tapped into it” (July 7, 2026), https://www.mprnews.org/story/2026/07/07/minnesota-paid-leave-program-hits-halfyear-mark-75000-have-already-tapped-into-it (accessed Nov. 3, 2026). [4] Minnesota DEED, After Six Months, supra note 1. [5] Minnesota Paid Leave, “About Paid Leave,” https://pl.mn.gov/about-paid-leave (accessed Nov. 3, 2026). [6] IRS Notice 2026-6, 2026-2 I.R.B. 313 (designating calendar year 2026 as a transition period for the employer-contribution portion of medical-leave benefits); see also Rev. Rul. 2025-4, 2025-7 I.R.B. 758 (Jan. 15, 2025) (federal income and employment tax treatment of state paid family and medical leave contributions and benefits). [7] Minnesota Chamber of Commerce, “Minnesota Chamber of Commerce User Survey: PFML” (L. Schothorst presentation, March 2026), https://media.beefree.cloud/pub/bfra/la2h29b2/tk4/ziv/bc7/Minnesota%20Chamber%20PFML%20survey%20presentation_March2026.pdf (accessed Nov. 3, 2026). [8] Minnesota Chamber of Commerce, Letter to House Workforce, Labor, and Economic Development Finance and Policy Committee supporting HF3597 (March 18, 2026), https://www.house.mn.gov/comm/docs/GOKZxINbR0uMqmLoX0kouw.pdf (accessed Nov. 3, 2026). [9] Minnesota Chamber of Commerce, “New survey highlights real challenges with Paid Family and Medical Leave” (Mar. 20, 2026), https://www.mnchamber.com/blog/new-survey-highlights-real-challenges-paid-family-and-medical-leave (accessed Nov. 3, 2026). [10] KSTP, “Minnesota Paid Leave has paid out nearly double what workers, employers have paid in” (July 8, 2026), https://kstp.com/kstp-news/top-news/minnesota-paid-leave-has-paid-out-nearly-double-what-workers-employers-have-paid-in/ (accessed Nov. 3, 2026). [11] Minnesota DEED, After Six Months, supra note 1. [12] Minnesota Paid Leave, News (premium rate unchanged for 2027), https://pl.mn.gov/resources/news (accessed Nov. 3, 2026). [13] Rev. Rul. 2025-4 and IRS Notice 2026-6, supra note 6. [14] Rev. Rul. 2025-4, supra note 6. [15] Minnesota Governmental Relations Council, “2027 Legislative Session,” https://www.mngrc.org/legislative-dates (accessed Nov. 3, 2026). [16] Minnesota Office of the Legislative Auditor, “Minnesota Paid Leave – Background Paper – May 2026,” https://www.auditor.leg.state.mn.us/announce/2026-27-MN-Paid-Leave.pdf (accessed Nov. 3, 2026). [17] Minnesota Chamber of Commerce, New survey highlights real challenges, supra note 9.
