The introduction of Minnesota’s Paid Family and Medical Leave (PFML) program, effective January 1, 2024, has ignited a debate among government officials and business leaders regarding its potential impact. While some advocate for the policy’s ability to enhance worker retention and improve employee well-being, others express concerns about its implications for small businesses and the regional workforce shortage.
Minnesota Governor Tim Walz signed bill HF 2 into law in 2023, establishing the PFML program. It provides employees with up to 12 weeks of paid medical leave and 12 weeks of paid family leave annually, capped at 20 weeks, along with job protection. According to Greg Norfleet, a director at the Minnesota Department of Employment and Economic Development (DEED), the program is designed for serious health conditions rather than minor ailments. He stated, “The program covers serious health care conditions and life events that employees will need time off in order to deal with.”
Funding for PFML comes from a combination of surplus dollars and payroll taxes shared between employers and employees. The tax rate for most businesses is set at 0.88%, divided equally between employers and employees. For smaller businesses, defined as those with fewer than 30 employees and average earnings below 150% of the statewide average weekly wage, the tax rate is lower at 0.66%, with the split favoring employees at 0.44% and employers at 0.22%. Employees taking leave will receive between 55% and 90% of their wages.
Opposition to the program has emerged from some legislators and business owners. Mark Johnson, a Minnesota state senator from East Grand Forks, expressed skepticism about the plan, arguing that it may not be as effective as existing third-party solutions. “We are going to build a 400-person bureaucracy… it’s another disincentive for businesses,” he said, highlighting concerns about Minnesota’s competitiveness, particularly in border communities.
Concerns regarding the financial burden on small businesses were echoed by Nancy Miller, owner of Vinna Human Resources, which represents over 85 businesses statewide. She believes the costs associated with PFML may exceed initial estimates, factoring in both payroll taxes and administrative expenses. “I think 20 weeks is excessive. I think 12 weeks would have been fine,” she commented, questioning the incentive for employees to return to work if they could receive a significant portion of their wages while on leave.
In contrast, Penny Stai, owner of River Cinema in East Grand Forks, views the costs of the program as manageable. With an annual payroll of approximately $1 million, Stai estimates her business would incur around $8,800 in costs, shared between her and her employees. “It’s not that much money… as long as it’s a good thing for the staff and for our community, that’s fine with me,” she said, though she acknowledged potential staffing challenges for small businesses during employee absences.
Similar workforce concerns were raised by Ryan Wall, vice president of administration for American Crystal Sugar. He emphasized that the company already provides a short-term disability benefit comparable to the state’s plan and anticipates increased staff shortages as a result of the new program. “We also anticipate the program will lead to increased staff shortages, requiring greater overtime costs,” Wall noted.
In response to potential staffing issues, the Minnesota government is offering Small Employer Assistance Grants to support businesses when employees take leave. These grants cover up to $3,000 per leave and a maximum of $6,000 per employee annually.
For employees to qualify for medical leave under PFML, they must have a “qualifying condition” certified by a healthcare professional that lasts at least seven days. Family leave qualifications are broader, covering events such as welcoming a new child, caring for a family member with a serious health condition, and providing support to military personnel.
Norfleet highlighted that the United States is among a few countries without a federal paid family and medical leave program, positioning Minnesota as the 13th state to implement its own. He cited positive outcomes observed in other states that have adopted similar programs, including increased employee retention and improved health outcomes. “In the 20 years since they launched that program, 87% of employers have said that they see no increased costs as a reduction as a result of the program,” he remarked.
The clear divide among local businesses illustrates the varied perspectives on the PFML program’s anticipated effects. East Grand Forks Economic Development Director Maggie Brockling noted that while some businesses view it as a valuable tool for retention, others see it as an additional burden. “Some felt that it was an added benefit to their staff, and that it could be seen as something, as a retention tool or an incentive to come work on this side of the state border,” she explained.
As the PFML program prepares to launch, Minnesota businesses are grappling with its potential implications, balancing the anticipated benefits for employees against the operational challenges and costs it may impose. The program will be administered by a newly established state agency within DEED, focusing on transparency and providing resources for employers managing leave requests. All Minnesota businesses, with exceptions for self-employed individuals, tribal nations, and federal government positions, will be enrolled in the program.