Minnesota businesses fear the expense and expanse of paid family and medical leave bill

David Senter fears his Hastings structural engineering firm will lose business if one of his five employees takes three months off.

Niles Deneen, CEO of mug-making St. Paul company Deneen Pottery, worries about navigating different state and federal requirements.

And businesses ranging from a small Moorhead chiropractor to St. Paul's Anchor Paper Co. are concerned about a new payroll tax.

Many executives are watching warily as Minnesota lawmakers develop a paid family and medical leave program. After years of failed attempts, Democrats are adamant that in 2023 they will join 11 other states that offer paid leave.

Some small-business owners have heralded the move, saying that both they and their workforce will benefit. But others say legislators' plans are more expansive than in some other states, could affect every employer and would make Minnesota an outlier in the Upper Midwest.

"There's a balancing act and Minnesota just hasn't taken this balancing act," said Lauryn Schothorst, with the Minnesota Chamber of Commerce. "Other states, it seems, have taken business feedback into consideration."

The program would require a sizable cash infusion to get started, with state leaders considering $668 million or more. A new cost estimate shows the payroll tax used to fund the program could collect $1.5 billion a year.

In Washington and Massachusetts, where paid leave has been the law for years, business groups said they were involved in negotiating programs. Unlike some other states, Minnesota has not used an advisory group or task force to shape its paid leave plan.

But Sen. Alice Mann, who is sponsoring the Senate bill, said her days are consumed by paid leave talk.

"Target, Best Buy, we've talked to them. Small-business owners, seasonal resorts," said Mann, DFL-Edina. "We've had regular, daily conversations with multiple groups of people — hospitality, hotels, restaurants — to talk about what we can do to make sure this works best for everybody, and at the end of the day we are taking care of people when they most need it."

Both Mann and Rep. Cedrick Frazier of New Hope, a DFL co-sponsor of the House bill, said they are still altering the measure and listening to concerns.

Businesses push change

Employers can opt out of the state paid leave program if they offer similar benefits through a private plan, according to the legislation. But Chamber of Commerce officials said they aren't aware of any companies that currently meet the requirements.

"We want to be clear about how the opt-out works, and we want to ensure people that it actually will be a real option," said Frazier.

Several business owners specifically cited worries about workers' ability to take up to 12 weeks of leave to bond with a new child or care for a sick family member, as well as 12 weeks for their own medical issues, in one year. That would amount to six months.

Workers need to meet requirements to qualify for leave, such as review by a health care provider. In other states it's rare for someone to qualify for both medical and family leave in one year. Mann noted people generally take less time than allowed, because the programs don't cover 100% of a worker's wage.

But on Thursday she offered a wide-ranging amendment that included scaling back how much time someone can take in a year if they encounter both situations. Under the amended Senate bill, their leave now would max out at 20 weeks, which is still more than a number of other states.

In Colorado and Oregon, where programs are currently being phased in, workers will be eligible for 12 weeks off in a year. If a Colorado worker has significant complications related to childbirth, they can take an additional four weeks, and in Oregon some pregnant employees may receive two more weeks.

Minnesota's paid leave program would be funded through a 0.7% payroll tax on employers, and an employer can have workers cover half the cost. Another amendment that the Senate Jobs and Economic Development Committee approved Thursday reduces the cost for employers with fewer than 30 workers.

Some states, like Massachusetts, exempt small businesses from making employer contributions to fund paid leave.

On another point of contention — exactly who you can leave work to care for — lawmakers have so far remained firm. The bills would allow workers to take time off to care for an individual "who is related by blood or affinity and whose association with the applicant is equivalent of a family relationship."

That's far broader than what is allowed under the unpaid federal Family Medical Leave Act (FMLA), and more sweeping than provisions in some other states.

Washington includes a fairly wide range of people in its paid leave program — a move that Bob Battles, with the Association of Washington Business, supported. "Ninety-nine percent of the time, they are going to be with the family," he said.

Battles said that if states choose to be more restrictive, "you are going to have some other cost somewhere else, whether it be public assistance or whatever, because they can't work because they are taking care of a sick family member."

Paying for the program

Since Washington implemented paid leave in 2020, Battles said he hasn't seen evidence the program has made the state any less attractive for employers.

"It's a generous system, but it was a balanced system," he said. "So my advice is just to listen to each other as you're negotiating."

Legislators in Washington offered another piece of advice: Do high-quality actuarial models of the program's finances.

Washington wasn't collecting enough money to cover paid leave requests. Workers ended up using the program more than anticipated, lawmakers there said, and the timing of the rollout — shortly before the pandemic hit — may have added to demand. The state boosted its premium rate twice, from 0.4% initially to 0.8% this year.

The chamber's Schothorst said she's worried the 0.7% payroll tax proposed for Minnesota will be insufficient and that the state could also increase the amount it's taking from employers and employees.

An actuarial study is required under the legislation, said Evan Rowe, with the Minnesota Department of Employment and Economic Development.

"My hope certainly is that we can learn lessons that other states learned the hard way, the easy way," Rowe said, including studying their staffing and the technology they use. "Technology and business process are really kind of everything for a program like this. How well can you run it?"

A legislative fiscal note released Wednesday estimated that by 2027, there would be 425 state employees administering the program.

Minnesota leaders are looking to use part of the $17.5 billion projected budget surplus to get the program running. Exactly how much has yet to be determined, with Walz proposing $668 million to jumpstart the program while Mann's bill has $1.7 billion. Other states had to rely on collecting premiums before they could provide benefits.

In 2026, the first full year Minnesota would offer paid leave benefits, the state estimates it would collect almost $1.5 billion from employers and employees, according to the fiscal note.

Several business owners said the added cost will mean they have to trim somewhere else, potentially in other benefits or profit sharing.

"Are people going to choose to expand in this state?" said Brooke Lee, CEO of Anchor Paper, which expanded its manufacturing operations in western Wisconsin in 2020. "I have concerns that you are going to see other companies do that as well because of the burden and increased cost to do business."