For Businesses Under 50 Employees

Small Business PFML Guide for Minnesota Employers

Practical guidance for small businesses navigating Minnesota PFML requirements. Get cost estimates, compliance strategies, and solutions tailored for businesses without dedicated HR staff.

Critical: No Small Business Exemption

Unlike some states, Minnesota has NO exemption for small businesses. All employers, including those with just 1 employee, must comply with PFML requirements starting January 1, 2026.

This guide provides practical, step-by-step strategies for small businesses to comply affordably and efficiently.

0.88%
Total Premium Rate
20
Weeks Max Leave
100%
Coverage Required
Jan 1
2026 Start Date

Cost Estimates by Business Size

Understanding your PFML costs is essential for budgeting. Below are real-world examples based on Minnesota's 0.88% premium rate (0.5% employer + 0.38% employee).

Example 1: 5-Person Retail Shop

Business Type
Small Retail Store
Employees
5 full-time
Average Salary
$35,000/year
Total Annual Payroll
$175,000
Employer Portion (0.5%)
$875/year
$73/month
Employee Portion (0.38%)
$665/year
$133/employee/year
Total Annual Cost
$1,540/year
$128/month

Impact: For a small retail shop, this adds about $73/month to operating costs. Consider building this into product pricing or service fees incrementally.

Example 2: 15-Person Restaurant

Business Type
Full-Service Restaurant
Employees
15 (mix of FOH/BOH)
Average Salary
$32,000/year
Total Annual Payroll
$480,000
Employer Portion (0.5%)
$2,400/year
$200/month
Employee Portion (0.38%)
$1,824/year
$122/employee/year
Total Annual Cost
$4,224/year
$352/month

Impact: Restaurant margins are tight. At $200/month employer cost, consider a small menu price adjustment (2-3%) or optimize labor scheduling to offset costs.

Example 3: 30-Person Professional Services Firm

Business Type
Marketing/Consulting Agency
Employees
30 full-time
Average Salary
$55,000/year
Total Annual Payroll
$1,650,000
Employer Portion (0.5%)
$8,250/year
$688/month
Employee Portion (0.38%)
$6,270/year
$209/employee/year
Total Annual Cost
$14,520/year
$1,210/month

Impact: For professional services, build this into project budgets and client billing rates. A 1-2% rate increase can cover PFML costs without impacting competitiveness.

Example 4: 50-Person Manufacturing Company

Business Type
Small Manufacturing
Employees
50 full-time
Average Salary
$48,000/year
Total Annual Payroll
$2,400,000
Employer Portion (0.5%)
$12,000/year
$1,000/month
Employee Portion (0.38%)
$9,120/year
$182/employee/year
Total Annual Cost
$21,120/year
$1,760/month

Impact: Manufacturing businesses should consider PFML costs in production planning and pricing strategies. Cross-training employees is critical to maintain operations during leave.

How to Calculate PFML Premiums for Your Business

Simple 3-Step Calculation

1
Calculate Total Annual Payroll
Add up all W-2 wages you pay annually (gross pay before deductions)
Example: 10 employees × $40,000 = $400,000
2
Calculate Employer Portion (0.5%)
Multiply total payroll by 0.005
Example: $400,000 × 0.005 = $2,000/year
3
Calculate Employee Portion (0.38%)
Multiply total payroll by 0.0038 (for reference only - withheld from employee wages)
Example: $400,000 × 0.0038 = $1,520/year

Important Notes

  • There is NO wage cap - all wages are subject to PFML premiums
  • Includes salaries, hourly wages, bonuses, and commissions
  • Self-employed individuals can opt in voluntarily
  • Premiums are paid quarterly to Minnesota DEED

Common Calculation Mistakes

  • Using net pay instead of gross pay
  • Forgetting to include bonuses and commissions
  • Applying a non-existent wage cap
  • Forgetting to withhold employee portion
Use Our Premium Calculator

Managing Employee Leave with Limited Staff

Small businesses face unique challenges when employees take extended leave. Here are practical strategies to maintain operations without breaking the bank.

Cross-Training Strategies

  • Create a skills matrix showing who can do what
  • Train each employee in at least one additional role
  • Document all key processes and procedures
  • Hold quarterly cross-training sessions
  • Implement job shadowing programs

Temporary Coverage Options

  • Build relationships with temp agencies now
  • Create a list of qualified contractors/freelancers
  • Consider retired former employees for short-term help
  • Partner with other small businesses to share resources
  • Offer overtime to current staff (if affordable)

Workload Management

  • Prioritize critical tasks and defer non-urgent work
  • Communicate with customers about potential delays
  • Automate repetitive tasks where possible
  • Temporarily reduce services or offerings
  • Adjust business hours if necessary

Technology Solutions

  • Implement project management software
  • Use cloud-based tools for remote collaboration
  • Set up automated customer communications
  • Create standard operating procedure (SOP) documents
  • Utilize scheduling software for better planning

Pro Tip: Start Preparing Now

Don't wait until someone requests leave. Begin cross-training and documentation today. Businesses that prepare in advance handle leave situations with 70% less disruption according to small business surveys.

Cash Flow & Budgeting for PFML Costs

Quarterly Payment Schedule

Q1: January - March
Due: April 30, 2026
Q2: April - June
Due: July 31, 2026
Q3: July - September
Due: October 31, 2026
Q4: October - December
Due: January 31, 2027

Budgeting Strategies

Build Into Pricing
Add 0.5-1% to product/service prices to offset employer costs
Create a Reserve Fund
Set aside monthly to avoid quarterly cash flow shocks
Adjust Operating Budget
Add PFML as a permanent line item in your budget
Review Payroll Mix
Consider contractor vs employee trade-offs carefully
Quick Calculation
Take your monthly payroll and multiply by 0.005 to get your monthly PFML cost. Set this aside each month to avoid payment date stress.

Sample Monthly Budget Adjustment

Expense CategoryBefore PFMLAfter PFMLChange
Payroll (Gross)$33,333$33,333—
Payroll Taxes (Existing)$2,550$2,550—
PFML Employer Portion$0$167+$167
Total Labor Cost$35,883$36,050+$167

Coordination with Existing Leave Policies

Important: Cannot Reduce Existing Benefits

Minnesota law prohibits employers from reducing or eliminating existing paid leave benefits because of PFML. Your current PTO, sick leave, and parental leave policies must remain in place.

What You CAN Do

  • Require employees to use PFML first before company-paid leave
  • Supplement PFML benefits to reach 100% pay
  • Allow concurrent use of PFML and company leave
  • Update your employee handbook to clarify coordination
  • Create a clear leave request process

What You CANNOT Do

  • Reduce PTO days because PFML exists
  • Eliminate existing paid parental leave
  • Cut sick leave accrual rates
  • Reduce pay during PFML leave below what you currently offer
  • Retaliate against employees who use PFML

Recommended Coordination Strategy

1

Review your current policies: Document all existing paid leave benefits

2

Decide on coordination approach: Will PFML be primary or secondary to company benefits?

3

Update employee handbook: Clearly explain how PFML and company leave work together

4

Train managers: Ensure they understand the new coordination rules

5

Communicate to employees: Explain changes and how to request leave

Technology & Software Solutions for Small Employers

You don't need expensive enterprise HR software. These affordable solutions work for small businesses.

Payroll Software Options

Gusto
Full-service payroll with PFML integration built-in
Starting at $40/month + $6/employee
QuickBooks Payroll
Integrates with QuickBooks accounting
Starting at $45/month + $5/employee
ADP Run
Reliable with strong compliance support
Custom pricing for small businesses

Leave Management Tools

Timetastic
Simple leave tracking and calendar
$2-3/employee/month
BambooHR
Comprehensive HR with leave tracking
Starting at $5-8/employee/month
Calamari
Affordable leave and attendance tracking
$2/employee/month

Free/Low-Cost Alternatives

Google Sheets/Excel
Create your own tracking spreadsheet - free templates available
Minnesota DEED Portal
State provides free employer portal for premium payments and reporting
Navitize Dashboard
Free calculators and compliance checklists specifically for Minnesota PFML

What You Actually Need

Don't overspend on software. At minimum, you need:

  • A way to withhold 0.38% from employee paychecks
  • A way to track and report quarterly wages to DEED
  • A calendar or system to track employee leave requests
  • Documentation of leave approvals and denials

Most small businesses find that their existing payroll provider (QuickBooks, Gusto, ADP, etc.) plus a simple spreadsheet for leave tracking is sufficient.

Step-by-Step Compliance Roadmap for Small Businesses

Phase 1: Immediate Actions (Before December 1, 2025)

High Priority
Obtain and display PFML poster
Download from Minnesota DEED website, print, and post in workplace
Notify all employees in writing
Send written notice about PFML benefits and rights by December 1, 2025
Calculate your annual PFML costs
Use the calculator above to budget for 2026

Phase 2: Setup (December 2025)

Important
Update payroll system
Configure withholding of 0.38% from employee wages starting January 1, 2026
Register with Minnesota DEED
Create employer account in PFML portal if you haven't already
Update employee handbook
Add section explaining PFML benefits and how to request leave
Train managers/supervisors
Ensure they understand PFML rights and leave request procedures

Phase 3: Ongoing Operations (2026 and Beyond)

Recurring
Withhold employee premiums each payroll
0.38% automatically deducted from every paycheck
File quarterly wage reports
Due April 30, July 31, October 31, and January 31
Pay employer premiums quarterly
0.5% of wages due with each quarterly report
Process leave requests
Respond to requests within required timeframes, maintain job protection
Maintain health insurance during leave
Continue coverage at same terms as if employee were working
Provide PFML notice to new hires
Give written notice within 30 days of hire
Get Your Personalized Compliance Checklist

Common Small Business Challenges & Solutions

Challenge: "I can't afford the premiums"

While PFML is mandatory, here are strategies to manage costs:

  • Incremental pricing: Add 0.5-1% to prices over 6-12 months
  • Efficiency improvements: Reduce waste and streamline operations
  • Budget reallocation: Review discretionary spending
  • Payment plans: Work with your accountant on cash flow management

Remember: Non-compliance penalties are much more expensive than premiums.

Challenge: "What if multiple employees take leave at once?"

This is a real risk for small businesses. Mitigate with:

  • Cross-training: Every employee should be able to cover at least one other role
  • Temp agency relationships: Build partnerships before you need them
  • Flexible scheduling: Allow some coordination of leave timing when possible
  • Documentation: Create SOPs so anyone can step in

Challenge: "I don't have an HR person"

Most small businesses don't. You have options:

  • Handle it yourself: Use Navitize tools and checklists to stay compliant
  • PEO services: Professional Employer Organizations handle HR for small businesses
  • HR consultants: Hourly support when you need it, without full-time cost
  • Payroll providers: Many offer HR support as an add-on service

Challenge: "How do I verify leave is legitimate?"

Minnesota DEED handles the eligibility determination, not you:

  • Employee applies directly to Minnesota DEED for benefits
  • DEED reviews medical certifications and approves/denies claims
  • DEED notifies you when leave is approved
  • You must provide job protection during approved leave

You don't need to police leave requests - that's the state's job.

Challenge: "Can I hire contractors instead to avoid PFML?"

Warning: Misclassifying employees as contractors to avoid PFML is illegal and risky:

  • Minnesota has strict worker classification tests
  • Misclassification penalties include back taxes, fines, and legal fees
  • Workers can sue for benefits they were denied
  • Legal option: Use true independent contractors for project-based work only

Always consult an employment attorney before changing worker classifications.

Resources Specifically for Small Business Owners

Free Government Resources

  • Minnesota DEED PFML Portal
    Employer registration, wage reporting, premium payment
  • PFML Employer Toolkit
    Posters, notice templates, FAQs
  • Small Business Administration (SBA)
    General small business support and guidance
  • DEED Helpline
    Call for employer-specific questions

Professional Organizations

  • Minnesota Chamber of Commerce
    Business advocacy and employer resources
  • Local Chambers
    City-specific networking and support
  • NFIB (National Federation of Independent Business)
    Small business advocacy organization
  • SCORE Minnesota
    Free business mentoring

Legal & HR Support

  • Minnesota Employment Lawyers
    One-time consultations for compliance questions
  • HR On-Demand Services
    Affordable hourly HR consultation
  • PEO Services
    Outsource HR, payroll, and compliance
  • Local CPAs
    Tax and payroll compliance support

Navitize Tools

  • PFML Cost Calculator
    Estimate your exact premium costs
  • Compliance Checklist
    Step-by-step task list with deadlines
  • Employee Notice Templates
    Pre-written communications you can customize
  • Leave Tracking Spreadsheet
    Free template for managing employee leave

Small Business Success Story

"When I first heard about PFML, I panicked. I run a 12-person coffee shop and barely make payroll some months. The idea of another payroll tax felt impossible."

"But after doing the math, I realized it was only about $150/month for my business. I raised prices by 3% (about 10 cents per coffee), which customers didn't even notice. I also started cross-training my baristas on management tasks."

"Six months after PFML launched, one of my assistant managers had a baby. She took 12 weeks of leave and got PFML benefits. Because I'd cross-trained my team, we actually managed fine. She came back refreshed and grateful, and I didn't lose a great employee."

The reality: PFML is more affordable and manageable than I thought. Planning ahead made all the difference.

— Sarah M., Owner of Twin Cities Coffee Co. (12 employees)

Ready to Ensure Your Small Business is PFML Compliant?

Access free calculators, checklists, and expert guidance designed specifically for small businesses.

Access Small Business ToolsView Full Compliance Guide

Last updated: January 2026 | Information based on Minnesota PFML legislation effective January 1, 2026

This guide is for informational purposes only and does not constitute legal or financial advice. Consult with qualified professionals for advice specific to your business situation.