Purpose

This bill amends Minnesota law to exempt certain S corporations from the state paid leave program by adjusting who counts as covered employment and who is considered an employee. It also creates an opt-in option for entities that would otherwise be excluded from coverage.

Main Provisions

• Covered employment definition (Subdivision 15)

  • Covered employment means performing services for wages or under a contract, without regard to normal master/servant relationships.
  • For a calendar year, an employee is considered covered if:
  • 50% or more of their work is performed in Minnesota, or
  • 50% or more of their work is not performed in Minnesota or in any one other state, but they live in Minnesota for 50% or more of the year.
  • Exclusions from covered employment include:
  • Self-employed individuals
  • Independent contractors
  • Corporate officers of a subchapter S corporation who own 25% or more of the employer (directly or through a subsidiary/holding company)
  • Entities that are excluded can opt in to coverage following a process set by the commissioner; if they opt in, their employees’ services are treated as covered employment.
  • The commissioner can adopt rules to define how this subdivision applies and to establish criteria for covered employment for those who don’t meet the basic criteria but work as employees for a Minnesota employer.

• Employee definition (Subdivision 17)

  • Employee means a person who performs services for an employer.
  • Exclusions from employee status include:
  • Employees of the United States government
  • Self-employed individuals
  • Independent contractors
  • Seasonal employees (as defined in the bill)
  • Corporate officers of a subchapter S corporation who own 25% or more of the employer

Significant Changes to Law

• Narrowed scope of who is considered covered employment by adding specific Minnesota residence/work thresholds and exclusions.
• Explicitly excludes certain categories from being employees under the paid leave program (federal government employees, self-employed, independent contractors, seasonal employees, and corporate officers owning 25%+ of a subchapter S corporation).
• Allows entities currently excluded to opt into the paid leave coverage through a process determined by the commissioner.
• Grants the commissioner authority to adopt rules to further define applicability and to address individuals who don’t fit basic criteria but perform services as employees.

Practical Implications

• Employers that are subchapter S corporations with corporate officers owning 25% or more may be exempt from the paid leave program for those officers and related employees unless they opt in.
• Seasonal workers, self-employed individuals, independent contractors, and certain federal employees are again pulled out of employee/covered-employment status under this program.
• The changes potentially reduce the number of employees covered by the paid leave program for qualifying S corporations unless an opt-in is chosen.

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 2024 section 268B.01, commissioner, opt in, rules (chapter 14).