Minnesota Payroll: Employer Tax Guide

Minnesota added an entirely new payroll obligation this January, and unlike most compliance changes it arrived with money attached from the first pay period.

The state Paid Leave program went live on January 1, 2026, funded by a premium of 0.88 percent of covered wages split between employer and employee. The first quarterly payment was due April 30. For an employer with a $2 million Minnesota payroll, the employer share alone runs roughly $8,800 a year, which is an order of magnitude more than any payroll software subscription on this page.

Around that sit obligations that were already there: four income tax brackets running to 9.85 percent, an unemployment wage base that rose to $44,000, three different minimum wages inside the state, and a prohibition on the tip credit that makes Minnesota one of the most expensive states in the country for restaurants. This guide covers what Minnesota requires, what changed for 2026, and how 10 payroll providers price the work.

What Minnesota requires from employers

The obligation set grew this year, so it is worth laying out the whole thing before going into the new part.

Registration runs through two agencies. Withholding is registered with the Department of Revenue, with employees completing Form W-4MN where their state situation differs from the federal W-4. Unemployment insurance is registered with the Department of Employment and Economic Development at uimn.org, and that same employer account is now where the Paid Leave account is created.

There is no local income tax anywhere in Minnesota, so unlike Ohio, Indiana, or Pennsylvania there is no address-level tax resolution problem. The local layer here is wage rules rather than tax jurisdictions.

The paid leave program that started this year

Minnesota Paid Leave is the largest change to payroll in this state in years, and because it launched mid-cycle for many employers it is also the item most likely to have been set up hastily.

The 0.88 percent total splits into 0.61 percent for medical leave and 0.27 percent for family leave. The wage base is the federal Social Security limit rounded to the nearest thousand, which puts it at $185,000 for 2026 against the federal $184,500.

Qualifying as a small employer

Two conditions must both hold. The employer must have 30 or fewer employees in each quarter, and must pay an average wage no higher than 150 percent of the statewide average, currently $27,745.88 per quarter. The average is calculated by dividing wages from the highest-paid quarter by the highest employee count, measured over a basis period covering the four quarters ending September 30 of the prior year.

That second condition catches employers who assume headcount alone determines the answer. A ten-person professional services firm paying well can exceed the wage test and pay the standard rate despite being small by any ordinary definition.

Timing and administration

Employers may run an approved private or self-insured plan instead of the state program, but it must deliver equivalent benefits and cannot charge employees more than the state premium rate. Employers must also provide notices, both a workplace poster and individual notice, and submit quarterly wage detail reports. Our overview of paid parental leave by state covers how these programs compare elsewhere.

Unemployment insurance and the industry rate

Minnesota sets its wage base each year at 60 percent of the state average annual wage as of June 30 of the prior year, which is why it moves in step with wages rather than by legislative action.

The new employer rate works differently here than in most states. Rather than assigning a single flat figure to every new business, Minnesota assigns a rate based on the average experience rate of employers in that industry. A new construction company and a new accounting firm start at different rates. On top of whichever rate applies, a base tax rate is added, set annually between 0.10 and 0.50 percent depending on the trust fund balance on March 31 of the prior year, and set at 0.40 percent for 2026.

Three minimum wages and no tip credit

The statewide rate is indexed to inflation and adjusts every January 1, with the 2026 figures reflecting a 2.5 percent increase. Minneapolis applies a single rate to all employers regardless of size and coverage depends on where the employee physically performs the work, not where the employer is based. St. Paul is still phasing in by employer size, with a second step arriving on July 1, 2026.

Pay transparency in job postings

Since January 1, 2025, employers with 30 or more employees in Minnesota must include in every job posting a good faith estimate of the starting salary range, or a fixed rate where one applies, plus a general description of benefits and other compensation. Ranges cannot be open ended. The requirement sits in Minnesota Statutes section 181.173. Our guide to pay transparency laws covers how state requirements differ.

Notice of pay changes

Minnesota requires employers to give each employee written notice of any change to their rate of pay before the change takes effect. That includes the January minimum wage adjustment for anyone at the floor, which means the annual indexing produces an annual notice obligation rather than just a rate update in the payroll system.

10 payroll providers for Minnesota employers compared

Every provider below files Minnesota state withholding and unemployment contributions. This year the differentiator is unusually clear: whether the platform calculates and remits the Paid Leave premium correctly, including the small employer rate and any employer election to cover more than the minimum.

OnPay

One plan at $49 per month plus $6 per employee, everything included, no tiers to climb. Tax filing covers all 50 states with no multi-state surcharge, and year-end W-2 and 1099 filing sits in the base price. OnPay maintains Minnesota-specific tax and minimum wage resources, a reasonable proxy for whether a vendor tracked the Paid Leave launch.

Gusto

The most common first payroll purchase for US small businesses, with automatic tax filing, published pricing, and the strongest onboarding experience among payroll-first platforms. Simple runs $49 per month plus $6 per employee after a base increase in early 2026.

The constraint is the single-state limit on Simple. One hire in Wisconsin, Iowa, or the Dakotas moves you to Plus at $80 plus $12 per employee.

Patriot Software

The cheapest legitimate full-service payroll on the market. Full Service is $37 per month plus $5 per employee and includes federal and state tax filing plus new hire reporting. Basic is $17 plus $4 if you file taxes yourself, which in Minnesota now means handling the quarterly Paid Leave remittance as well as the withholding and unemployment returns.

Square Payroll

At $35 per month plus $6 per person, Square is the cheapest full-service option with published pricing. For a Minneapolis or St. Paul restaurant, the case is stronger here than in most states: with no tip credit permitted, accurate hours and location data drive both the wage floor and the Paid Leave premium base, and Square keeps timecards and payroll in one system.

SurePayroll

Owned by Paychex and built for very small employers and household employers. Full Service is $29 per month plus $7 per employee, with a flat $9.99 monthly multi-state fee rather than a per-state charge.

QuickBooks Workforce Payroll

Core is $50 per month plus $6.50 per employee, and the argument for it is unchanged: if your books live in QuickBooks Online, payroll reaches the general ledger without an export.

ADP RUN

ADP has the deepest tax compliance engine in the category, and a brand new state program is exactly where that depth converts into value: the Paid Leave rules arrived with a small employer test, a wage base tied to the federal limit, and an employer election to cover more than the minimum, all of which had to be built rather than adjusted.

The cost is opacity. ADP does not publish RUN pricing; third-party estimates put Essential near $79 per month plus $4 per employee, but every quote is individual. Contracts typically run a year with automatic renewal and a 30 to 60 day cancellation window.

Paychex Flex

Paychex competes on service rather than software, and unusually among quote-driven vendors it publishes an entry rate: Essentials at $39 per month plus $5 per employee, with higher tiers quoted individually. In a year when a new state program launched, having someone to call about the small employer determination has real value.

Paylocity

Paylocity sits between small-business payroll and full HCM, aimed at companies that have outgrown basic payroll. It publishes detailed per-state tax facts including Minnesota and notes the W-4MN filing requirement, and leave tracking is native rather than an add-on. Pricing is quote-based and implementation is a project rather than a signup.

Rippling

Rippling unifies payroll, HR, and IT provisioning on one employee record. The core platform is $35 per month plus $8 per employee, with payroll as a separate module. Real-world all-in costs land between $25 and $45 per employee per month once you assemble a working configuration.

What each provider actually costs a Minnesota employer

The table below models published rates at three headcounts. Read it alongside the Paid Leave premium rather than in isolation, because in Minnesota the software is no longer the main number.

Square is the cheapest published option at every headcount, with Patriot and Paychex Essentials close behind. Gusto Simple is competitive until one cross-border hire forces the Plus tier, taking a 25-person payroll from $199 to $380 per month.

Choosing a payroll provider for Minnesota

Before you choose

FirstHR does not process payroll, file payroll taxes, or administer benefits. Every provider above does something we do not, and in a state that just added a new premium with quarterly remittance, choosing a platform that handles it correctly is the most consequential decision on this page.

What we handle is the document layer that feeds payroll: onboarding workflows, e-signature on Form W-4MN, I-9s, and offer letters, employee records, and document management for 5 to 50 employee US teams at a flat $98 to $198 per month. Several Minnesota obligations are document and notice problems rather than payroll problems, namely collecting W-4MN alongside the federal W-4 before day one, issuing the written notice of pay rate changes the state requires, distributing the Paid Leave notice to employees, and filing the new hire report. Our Minnesota HR compliance guide covers the wider set of state obligations beyond payroll.

Frequently Asked Questions

What are the Minnesota payroll taxes an employer has to handle?

Three at state level plus federal: income tax withholding on four brackets from 5.35 to 9.85 percent, unemployment insurance on the first $44,000 of wages, and the Paid Leave premium of 0.88 percent launched in 2026. There is no local income tax, though Minneapolis and St. Paul set their own minimum wages. See our overview of payroll taxes by state for how this compares elsewhere.

What is the Minnesota Paid Leave premium?

0.88 percent of covered wages for 2026, comprising 0.61 percent medical and 0.27 percent family leave, on wages up to $185,000. The employer pays at least 0.44 percent and may withhold up to 0.44 percent from the employee. Qualifying small employers pay 0.66 percent total. Maximum contributions are $814 for employees and $1,628 for employers, or $1,221 for small employers.

Which Minnesota employers qualify for the reduced paid leave rate?

Those with 30 or fewer employees in each quarter and an average wage no higher than 150 percent of the statewide average, currently $27,745.88 per quarter. The average divides wages from the highest-paid quarter by the highest employee count over the four quarters ending September 30 of the prior year. Both conditions must be met.

When are Minnesota Paid Leave premiums due?

Quarterly, with the first payment for 2026 due April 30. Premiums are collected by the state alongside quarterly wage detail reports. The Paid Leave account is created through the existing employer account at uimn.org and a Paid Leave Administrator must be designated. Approved private plans are permitted if they provide equivalent benefits and charge employees no more than the state rate.

What is the Minnesota unemployment insurance wage base?

$44,000 for 2026, up from $43,000, set at 60 percent of the state average annual wage as of June 30 the prior year. New employers receive a rate based on their industry average rather than a single flat figure, and experience rating begins after more than two years. A base tax rate of 0.40 percent is added on top for 2026. Our guide to state unemployment tax covers experience rating.

What is the minimum wage in Minnesota?

$11.41 statewide as of January 1, 2026, with a 90-day training wage of $9.31 for workers under 20. Minneapolis is $16.37 for all employers. St. Paul is $16.37 for employers of 101 or more, rising to that rate for employers of 6 to 100 on July 1, 2026, with $14.25 for micro employers of five or fewer from the same date.

Does Minnesota allow a tip credit?

No. Tipped employees must receive the full applicable minimum wage in cash and tips cannot count toward it. In Minneapolis that means $16.37 per hour before tips, compared with a $2.13 federal tipped cash wage in states permitting the credit. This is the largest single cost difference for tipped businesses between Minnesota and most neighboring states.

Does Minnesota have a pay transparency requirement?

Yes, since January 1, 2025, for employers with 30 or more employees in the state. Every job posting must include a good faith estimate of the starting salary range or a fixed rate, plus a general description of benefits and other compensation, under Minnesota Statutes section 181.173. Ranges cannot be open ended.

How do Minnesota employers register for payroll?

Withholding registration through the Department of Revenue, with Form W-4MN for employees whose state situation differs from the federal W-4, and unemployment registration through the Department of Employment and Economic Development at uimn.org. The Paid Leave account is created within that same employer account, and a Paid Leave Administrator must be designated. See our guide to tax forms for new employees for the full first-day document set.