HF3597

Purpose

This bill aims to modify who is covered by Minnesota’s paid leave program by refining who counts as an “employee” and what constitutes “covered employment,” and by exempting certain Subchapter S corporation (S corp) officers from paid leave requirements. It also creates a pathway for previously excluded entities to opt in to coverage and gives the state commissioner authority to set rules.

What the bill does (Main Provisions)

• Amends Minnesota Statutes 2024 section 268B.01 to redefine covered employment and who is an employee, affecting who must participate in the paid leave program.
• Changes to covered employment (Subdivision 15):
  • Covered employment includes performing services for wages or under a contract, without regard to traditional master/servant relationships.
  • For a calendar year, employment is considered covered if:
  • 50% or more of the work is performed in Minnesota, or
  • 50% or more of the work is not performed in Minnesota or in any single U.S. state/territory/foreign nation, but some work is performed in Minnesota and the employee lives in Minnesota for 50% or more of the year.
  • Exclusions from covered employment include:
  • Self-employed individuals
  • Independent contractors
  • Seasonal employees (as defined in another subdivision)
  • Corporate officers of a Subchapter S corporation who own 25% or more of the employer
  • Excluded entities can opt in to coverage through a process determined by the commissioner; if they opt in, their employees’ work will be treated as covered employment.
  • The commissioner can adopt rules to further define covered employment and to set criteria for individuals who perform services but don’t meet the standard criteria.
• Changes to the employee definition (Subdivision 17):
  • Employee is defined as a person who performs services for an employer.
  • Exclusions from the term employee include:
  • Employees of the United States
  • Self-employed individuals
  • Independent contractors
  • Seasonal employees
  • Corporate officers of a Subchapter S corporation who own 25% or more of the employer

Key concepts and thresholds

• Covered employment is tied to where the work is performed (Minnesota vs. other locations) and/or where the employee resides, with a 50% threshold used to determine coverage for the year.
• Corporate officers of Subchapter S corporations with 25% or more ownership are explicitly excluded from both the employee and covered-employment definitions unless they opt in.

Significant changes to existing law

• Explicitly excludes certain individuals from being treated as employees or covered employment (self-employed, independent contractors, seasonal workers, and 25%+ S corp corporate officers) unless an opt-in is chosen.
• Introduces an opt-in mechanism for entities that are otherwise excluded to participate in the paid leave program.
• Allows the state commissioner to issue rules to clarify and implement these definitions, including applicability to individuals who do not meet the standard criteria but perform services for a Minnesota employer.

Administrative and implementation notes

• The commissioner is granted authority to adopt rules under the state’s rulemaking process (chapter 14) to define and apply these provisions.
• A formal opt-in process is to be determined by the commissioner, providing a pathway for some excluded entities to elect coverage.

Effects and implications

• For many S corporation officers who own a substantial share (25% or more), eligibility for paid leave coverage may be removed unless they opt in.
• Self-employed individuals, independent contractors, and seasonal workers continue to be excluded from coverage unless they opt in (where applicable).
• Employers with excluded status can choose to participate in the paid leave program through the opt-in process.
• The administration of the program will rely on clarified definitions of “covered employment” and “employee,” potentially changing who is eligible for paid leave benefits in Minnesota.

Relevant changes in interpretation - The definitions of “covered employment” and “employee” are narrowed for certain high-ownership S corp officers. - An opt-in option creates potential coverage opportunities for entities previously excluded.

Practical examples (not in text, for clarity)

• An officer who owns 30% of an S corporation would typically be excluded from the employee/covered-employment definitions unless the company opts in.
• A worker who spends half or more of their year performing services in Minnesota would be treated as covered employment, even if some work is done elsewhere, provided they live in Minnesota at least half the year.
• A seasonal worker continues to be excluded unless the opt-in process makes them covered.

Relevant Terms - paid leave program - covered employment - employee - self-employed - independent contractor - seasonal employee - corporate officer - Subchapter S corporation - Internal Revenue Code - 25 percent ownership - Minnesota Statutes 268B.01 - subdivision 15 - subdivision 17 - commissioner - opt in - rules (chapter 14) - Minnesota - calendar year - residence - location of employment - United States territory/foreign nation