This article is part of our ongoing Minnesota Paid Family and Medical Leave (PFML) series, designed to help employers prepare for the law’s rollout in 2026. If you haven’t already, read our earlier insights on setting up your PFML employer account, understanding the law’s key provisions, and PFML tax implications.
In this installment on the upcoming MN Paid Family and Medical Leave Act, which goes into effect in January 2026, we’d like to discuss the small business assistance option in the law.
What’s Changing for Small Employers
Beginning October 1, 2025, qualifying small employers in Minnesota will pay a reduced PFML premium rate of 0.66%, compared to the standard 0.88% rate. This small business assistance option aims to ease the cost burden as the state prepares for full implementation of the Paid Family and Medical Leave Act in January 2026.
Who Qualifies for the Reduced Rate?
Your business may qualify for the reduced rate if both of these conditions apply:
- You have 30 or fewer employees.
- Your employees’ average weekly wage is below 150% of the state’s average weekly wage.
For 2025, the state average weekly wage is $1,423, meaning businesses with average employee wages below $2,134.50 qualify.
Example:
Estimated Annual Gross Wages (CY 2025): $687,118
÷ 52 weeks = $13,214
÷ 10 employees = $1,321 average weekly wage per employee
This employer qualifies for the reduced rate.
Breakdown of the Premium Cost
The PFML premium is shared between employers and employees.
- Employers pay 0.22% of the total rate (25% of 0.88%).
- Employees cover the remaining 0.44%, but can pay less if the employer contributes more.
Employers can choose to contribute more than the minimum 0.22%. This extra contribution can reduce the employee portion, but it is treated as additional taxable compensation and must be reflected on employees’ W-2s.
For more on how PFML affects payroll and taxes, review our post on PFML tax considerations for employers
Tax Considerations for Small Businesses
Employees might be able to deduct these extra employer contributions on their state income tax, provided they itemize deductions and don’t exceed the state and local income tax deduction limit.
Plan Ahead: Estimate Your 2025 Premium
Minnesota employers can use the Paid Leave Premium Estimator on the Minnesota Paid Leave website to calculate expected costs. By entering your business’s wage data, you’ll receive an estimate of both employer and employee contributions.
Next Steps for Employers
This reduced rate provides welcome relief for small employers, but it also underscores the importance of early planning. Establishing a clear understanding of your premium obligations, payroll processes, and employee communication plans now will prevent compliance challenges later.
Smith Schafer’s Outsourced Accounting team can help you model the financial impact, align payroll systems, and stay compliant with evolving regulations. Learn more about our outsourced accounting solutions.
