A new Paid Family and Medical Leave (PFML) program will take effect in Minnesota on January 1, 2024, but opinions among employers and elected officials are sharply divided. While some advocate for the initiative as a means to enhance employee retention and well-being, others express concerns about its potential impact on small businesses and the existing workforce shortage in the region.
The PFML program, signed into law by Minnesota Governor Tim Walz in 2023, allows employees to take up to 12 weeks of paid medical leave and 12 weeks of paid family leave annually, with job protection. Greg Norfleet, director at the Minnesota Department of Employment and Economic Development (DEED), emphasized that the program is designed for serious health conditions and significant life events rather than minor illnesses.
“Our program covers serious health care conditions and life events that employees will need time off to deal with,” Norfleet stated. He explained that the focus is on ensuring employees can be present during crucial moments in their lives.
Funding for the program will come from a combination of surplus funds and payroll taxes shared between employers and employees. Most businesses will see a tax rate of 0.88%, split equally between employer and employee contributions. Small businesses, defined as those with fewer than 30 employees earning below 150% of the statewide average weekly wage, will benefit from a lower rate of 0.66%.
Critics like Senator Mark Johnson (R-East Grand Forks) argue that while the concept sounds appealing, the implementation may be inefficient. He expressed skepticism about the government’s ability to effectively manage the program compared to the existing third-party options. “We are going to build a 400-person bureaucracy,” Johnson commented, warning that the initiative could deter businesses from operating in Minnesota.
Concerns about financial implications are echoed by Nancy Miller, owner of Vinna Human Resources, which serves over 85 businesses statewide. She predicts that the costs associated with PFML could exceed initial estimates, not just in payroll taxes but also in administrative expenses. “I think 20 weeks is excessive. I think 12 weeks would have been fine,” Miller stated, questioning the high percentage of wage replacement and its potential to disincentivize a swift return to work.
Conversely, Penny Stai, owner of River Cinema in East Grand Forks, perceives the program positively. With annual payroll costs around $1 million, she calculates her share of the program would be around $8,800 per year. “It’s not that much money,” Stai remarked, adding that the program could enhance employee morale and benefit the community.
Though she supports the initiative, Stai acknowledged that it could lead to staffing shortages, particularly for small businesses. “The hardest part is just going to be for small-staffed places to be able to fill those positions for a month or three months until they return,” she noted, highlighting the challenges of training temporary workers.
Concerns about workforce impacts are further shared by Ryan Wall, vice president of administration for American Crystal Sugar, which operates three locations in eastern Minnesota. He pointed out that the company already provides short-term disability benefits comparable to those in the state’s plan, but anticipates increased staff shortages and associated costs. “We also anticipate the program will lead to increased staff shortages, requiring greater overtime costs and additional staff to ensure operations across all three locations are not at risk,” Wall explained.
To support small businesses facing staffing challenges, the Minnesota government has introduced Small Employer Assistance Grants, which can cover $3,000 per leave, up to $6,000 annually for each employee.
Norfleet clarified that to qualify for medical leave under the PFML program, an employee must have a certified condition lasting at least seven days. Family leave qualifications are broader, covering scenarios such as welcoming a new child, caring for a family member with a serious health condition, and supporting military members on active duty.
As one of the few countries without a federal paid family and medical leave program, the United States will see Minnesota become the 13th state to implement its own PFML policy. Norfleet noted that states with similar programs have reported positive effects, including improved health outcomes for employees and their families, as well as benefits for businesses.
“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 said, adding that 99% report a positive or neutral effect on their operations.
Local economic leaders, such as Maggie Brockling, director of economic development in East Grand Forks, observed that businesses are divided in their expectations of the program’s impact on staffing. “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 mentioned.
Despite the split opinions, the PFML program is set to roll out in the new year. It will be administered by a new state agency within DEED, which aims to provide transparency and useful information through an online leave administrator portal, designed to help employers manage leave requests efficiently. All businesses in Minnesota, excluding self-employed individuals, tribal nations, and federal government positions, will be automatically enrolled in the program.
