Key Law Changes Effective January 1, 2026

As 2026 approaches, Minnesota auto dealerships should prepare for several important changes in state and federal law that will affect payroll, employee benefits, and workplace compliance.

1. Minnesota Paid Family & Medical Leave (PFML)
Minnesota’s Paid Family & Medical Leave program officially launches January 1, 2026, providing wage replacement benefits to employees for qualifying family and medical events. The program applies to most employees who work or live in Minnesota, including part-time and seasonal staff.

Key Features of PFML:

• Covered events: Employees may take leave for their own serious health condition, bonding with a new child, caring for a seriously ill family member, or addressing certain safety concerns such as domestic violence.

• Benefit duration: Employees are eligible for up to 12 weeks of family leave, up to 12 weeks of medical leave, with a combined maximum of 20 weeks per benefit year.

• Wage replacement: Benefits replace a portion of the employee’s wages, calculated based on prior earnings, with a maximum weekly cap.

• • Payroll contributions:
    
    • The total PFML premium rate is 0.88% of each employee’s taxable wages.
    • Employers must remit the full 0.88% to the state.
    • Employers may deduct up to 0.44% from employee wages, with the remaining 0.44% paid by the employer.
    • Employers may choose to pay more than the minimum 0.44% employer share to increase employee benefits.
• Small employers: Employers with 30 or fewer Minnesota employees and average wages below 150% of the statewide average weekly wage (currently $2,134) may pay a reduced total premium of 0.66%. Under this reduced rate, the employer’s minimum contribution is 0.22%. Employers may still deduct up to 0.44% from employees’ wages.The small employer employee count is the largest number of Minnesota employees reported by an employer on a single wage detail report during the four-quarter period that ended September 30 of the prior year. That means, when the program launches in 2026, this will be the highest number of Minnesota employees reported in a single quarter between Oct. 1, 2024 and Sept. 30, 2025.

• Notices and postings: Employers must provide required employee notices about PFML eligibility and rights.

• Optional private plan: Employers may offer a state-approved private PFML plan that meets or exceeds state benefit levels instead of the state program.

2. Earned Sick and Safe Time (ESST) — New Advancing Option
Minnesota’s ESST law continues in 2026, providing at least 1 hour of sick and safe time for every 30 hours worked, up to a minimum of 48 hours per year. Employees can carry over unused hours up to a total of 80 hours.

What’s new in 2026: Employers may now advance ESST hours based on the estimated number of hours an employee will work for the remainder of the year. This differs from the old front-loading method, where employers who opted for front-loading had to provide at least 48 hours upfront if carryover was allowed or 80 hours upfront if no carryover was allowed.

Why this matters, especially for new hires: Previously, employees hired late in the year could receive too many hours and then be front-loaded again at the start of the next leave period, creating administrative challenges. The advancing option allows employees — especially new hires and part-time staff — to access leave immediately without waiting to accrue it through actual hours worked. It also helps employers maintain a consistent leave calendar for all employees.

EXAMPLE: A part-time employee expected to work 1,000 hours for the remainder of the year would earn about 33 hours of ESST. Using the advancing option, the employer can advance all 33 hours immediately, allowing the employee to use their full anticipated leave without waiting to accrue it.

3. Meal & Rest Break Requirements
Effective January 1, 2026, Minnesota requires non-exempt employees to receive:

• A paid 15-minute rest break for every four hours worked (or sufficient time to access the nearest restroom).
• An unpaid 30-minute meal break for shifts of six or more consecutive hours.

4. Minnesota Minimum Wage Increase
The statewide minimum wage increases to $11.41 per hour on January 1, 2026. Local city or county rates may be higher and take precedence. Employers should update payroll systems to reflect the new minimum wage.

5. Federal Payroll and Benefits Changes
Several federal updates will affect payroll and benefits in 2026:

• Employer-paid student loan repayments are permanently tax-free for employees.
• Dependent care FSAs may now accept employee contributions of up to $7,500 annually.
• Enhanced childcare tax credits are available to eligible employers.
• 1099 reporting thresholds increase from $600 to $2,000.

The Social Security wage base rises to $184,500, and benefits receive a 2.8% cost-of-living adjustment.