How to Do Payroll in Minnesota

The income tax withholdings in Minnesota are complicated, with unique taxes for artists, a separate rate for supplementary compensation, and so on. It also has varying rates depending on what amount of your wage you’re calculating taxes on, with part of a salary (for example, the first $33,520 for the head of household filers) being taxed at one rate and the rest at a separate rate. It also has state-mandated Unemployment Benefits and workers’ compensation.

Tax-filing payroll software may make things simpler for you and keep you compliant. Gusto is a service that monitors payroll and tax rules in all 50 states. It also provides your workers with a variety of payment choices, including direct deposit, paper check, and payment card.

How to Run Payroll in Minnesota: A Step-by-Step Guide

Step 1:

Register your company as an employer. You’ll need your Employer Identification Number (EIN) and an account with the Electronic Federal Tax Payment System (EFTPS) at the federal level (EFTPS).

Step 2:

Register with the Minnesota Department of Commerce. You’ll need your EIN, contact information, officers’ names and Social Security numbers, and your NAICS code to apply for a Minnesota tax ID. Then, to submit payments, open an account with Minnesota e-Services. To submit and pay state Unemployment Benefits taxes, you’ll need a Minnesota Unemployment Benefits Employer Account.

Step 3:

Create a payroll system. You’ll need to come up with a payroll plan that assures workers are paid at least once a month. You must also decide how you will pay them, how you will collect and submit Forms for Payroll, and when you will begin processing payroll prior to payday.

Step 3:

Collect employee payroll paperwork. These forms are best completed during the onboarding process for new employees. W-4, I-9, and direct deposit permission are among the forms available. Employees in Minnesota must complete Form W-4MN. If citizens of North Dakota and Michigan want to be excluded, they must fill out Form MWR.

Step 5:

Collect, evaluate, and approve timesheets. If you have hourly or nonexempt workers, keeping track of their hours is critical. Overtime is taxed at a separate rate, so be sure it’s correctly reported.

Step 6:

Work out your payroll and pay your staff. You may calculate payroll using software, a calculator, or even a pre-programmed Excel template. Minnesota provides a method for calculating withholdings that you may put into your software. You’ll be ready to pay personnel after you’ve determined gross and net compensation, Deductions, taxes, and so on; the most typical ways are direct deposit and paper check.

Step 7:

File payroll taxes with both the federal and state governments in Minnesota. For federal taxes, including unemployment, follow the IRS’s guidelines.

Most Taxes in Minnesota and Unemployment Benefits must be filed and paid online.

• Minnesota Income Taxes: If you paid less than $500 in withholdings the previous year, you may file as an annual filer by January 31 of the following year, or by the last day of the month if you paid more than $500. Otherwise, stick to the quarterly plan, much as SUTA. Depending on how much you owe, though, your payments will be required more regularly.

If you’re a seasonal employer, look into your possibilities with the Minnesota Department of Revenue.

• SUTA: These payments are required every three months. Use the Employer Self-Service System to file them. To learn more about file formats, go to the Minnesota UI website.

If a report or tax payment is due on a Saturday, Sunday, or legal holiday, the report or payment is deemed timely if it is received on or before the next working day.

Step 8:

Keep track of your payroll data. Employee records must be kept for at least three years in Minnesota. Contact information for you and your employee, pay stub information, a record of complimentary meals, and proof of age for children should all be included. You must preserve payroll tax records for at least four years under federal law.

Step 9:

Complete your year-end payroll tax returns. By January 31 of the following year, send federal Forms W-2 (for employees) and 1099 (for contractors) to your employees. You’ll also need to provide the IRS copies and summary sheets of each.

Minnesota Payroll Laws, Taxes & Regulations

Most firms must pay Federal Insurance Contributions Act (FICA) taxes, regardless of where they are located. FICA tax rates for Social Security and Medicare are now 6.2 percent and 1.45 percent, respectively. Both you and the employee will be responsible for these taxes, with each paying 7.65% of the total. Federal unemployment taxes are 6% of each employee’s wages up to $7,000—workers are not responsible for this; you are.

Taxes in Minnesota

Minnesota’s Income Taxes in the Different States are a bit more complicated since the rates vary depending on how much an employee earns. It does, however, provide withholding forms, formulae, and an online calculator to assist you in determining how much you should pay.

Income Taxes in Different States

You must withhold state taxes if you withhold federal taxes. If they are employees, Minnesota mandates you to withhold for family members, students, and agricultural laborers. Wages in the form of commodities or services are considered income for withholding purposes. Withholdings apply to corporate officials as well.

There are several exceptions, such as interstate carriers and interstate airline firms. Nonresident performers face a unique tax that necessitates withholdings. Royalties from mining corporations, pensions, surety deposits, and building contractors all have specific concerns. The Minnesota Income Tax Withholding and Tax Tables pamphlet has all the facts.

Minnesota’s Income Taxes in the Different States run from 5.35% to 9.85%, depending on filing status and wages. You may end up applying different rates to the same employee. For example, an employee earning $50,000 a year is taxed 5.35% on the first $39,810 (for married filing jointly), and 6.8% on the rest.

Withholdings are calculated based on the status and allowances listed on Form W-4MN. The federal W-4 form should not be used. Withhold taxes at single file status with zero allowances if an employee fails to complete the state W-4MN.

In addition, extra payments like overtime, commissions, or bonuses must be withheld at a rate of 6.25 percent in Minnesota.

A withholding calculator is available on the Minnesota Department of Revenue’s website to help you figure out how much you need to withhold and pay.

If one of the following applies to you, you must pay electronically:

• During the 12-month period ending June 30, you withheld $10,000 or more in Minnesota income tax.
• Any other Minnesota company tax must be paid online to the Minnesota Department of Revenue.
• You employ the services of a payroll service provider.

If you have to pay business taxes online for one year, you must do so for all subsequent years.

Agreements of Reciprocity

Minnesota has Agreements of Reciprocity with Michigan and North Dakota. If you have employees that are residents of these states, they need to fill out a Form MWR, Reciprocity Exemption/Affidavit of Residency. Then, you do not need to withhold taxes for Minnesota but rather their home state.

Businesses That Operate Seasonally

You may be eligible for a seasonal deposit and filing option if you routinely withhold taxes in the same three quarters but not all four in a calendar year. You will be able to pay just during the quarters in which you pay salary. To be eligible, you must submit an application to the state. Visit the Minnesota Department of Revenue’s website for further information.

Unemployment Benefits

The Minnesota Legislature has decided to “rollover” the UI experience rates from 2020 to 2021. Employers with a high level of UI expertise will maintain the same UI experience rate as the previous year.

Minnesota charges SUTA taxes. Any employer with one or more employees doing paid work needs to pay Unemployment Benefits. Most wages, including paid time off, are included. Excluded wages include Retirement, sick pay under some circumstances, reimbursements, and royalties. Excluded employees include corporate officers (including family members) with more than 25% ownership and employees of churches and religious organizations.

Minnesota’s unemployment taxes are complex and determined each year. The taxable wage base is 60% of Minnesota’s average annual wage. In 2021, that’s $35,000. The base tax rate runs from 0.1% to 0.5% and is determined each year by the Minnesota Unemployment Benefits Trust Fund. For 2021, it’s 0.1%. The experience rate is the same as it was in 2020 and is maxed out at 8.9%. New employer rates vary from 1% to 8.9%, depending on the industry.

Insurance for Workers’ Compensation

Minnesota requires you to pay Insurance for Workers’ Compensation, even if you have only one part-time employee. This includes minors and noncitizens. You must purchase through an insurance company. Minnesota does not allow private companies to pay medical bills directly for a workers’ compensation-qualifying injury.

Minnesota’s Minimum Wage Laws

Large companies in Minnesota pay higher rates ($10.08 per hour) than smaller firms ($8.21 per hour), but the training wage is the same for both. There are no tip credits applied to the minimum wage, and earnings are calculated based on the total number of hours worked. Employers having a gross income of more than $500,000 per year are considered large.

There are a few exceptions:

• Workers in the executive, administrative, or professional sectors
• Babysitters
• Nonprofit organization volunteers
• Farmworkers who are paid a set amount or who are under the age of 18 in certain circumstances
• Drivers of taxicabs
• Employees who are covered by the Department of Transportation’s rules, such as drivers, drivers’ aids, mechanics, and loaders

Overtime Regulations in Minnesota

Overtime begins when an employee works more than 48 hours in a week and is paid at 1.5 times the standard rate of pay. For overtime purposes, hours spent on call and employee waiting time are counted as hours worked. The exemptions are identical to those for minimum wage workers.

Employees Can Be Paid in a Variety of Ways

Wages may be paid in cash or via cheque. You may pay by direct deposit or payroll card if an employee agrees. Minnesota Statute 177.255 specifies the standards for payroll cards. These include stuff like:

• The card account must be owned by the employee.
• A credit card cannot be connected to the card.
• You and the card issuer are both unable to deduct any money from the card.
• The employee must give you permission to electronically deposit the payments.
• You must provide them the option of having the money deposited without having to pay a charge to access it.

You can’t make an employee accept direct deposit or pay cards under duress. Additionally, you must supply the staff with deposit records (upon request).

Pay Stub Regulations

Each payday, pay stubs must be given, and they must contain the following information:

• Name of the employee
• Payscale based on the hour (if applicable)
• Employee’s total amount of hours worked
• Total compensation earned by the employee throughout that time period
• Deductions
• After deductions, your net salary
• When does the pay period end?
• Employer’s legal name (and, if different, its operational name)

Minimum Pay Period

In Minnesota, employees must be paid at least once every 31 days, and all commissions must be paid every three months. If earnings are earned within the first half of a 31-day pay period, you must pay new workers on the first regular payday. Employees at public service companies, such as utilities, must be paid at least twice a month.

Payroll Deduction Regulations

For the following reasons, you may deduct money:

• Deductions agreed upon by the union
• Employer loans are repaid
• Withholdings imposed by the courts
• Funds for Retirement or a pension
• Retirement
• Advantages to your health
• When an employee departs, uniforms or equipment (up to $50) must be returned.

Unless the employee has been proven accountable in court or has given you permission to take from their salary, you cannot deduct wages for damaged equipment, lost money, or other damages.

Laws Regarding Final Paychecks

You must pay an employee within 24 hours of the employee’s claim for payment if they are dismissed or laid off. You have up to 10 days after the separation to audit accounts if the employee was in control of money or property.

If an employee leaves, you must pay all outstanding wages before the following payday, unless the next payment is within five days of the employee’s departure. Then you have until the next paycheck, or until the employee leaves, whichever comes first.

Use one of our suggested methods to generate a free payroll check if you need to pay an employee fast and aren’t already utilizing a payroll provider.

Paid Time Off (PTO)

You are not obligated to give paid vacation time, but if you do, it should be included in your employment contract. Furthermore, if you allow this, you must pay any accumulated leave to workers if they leave your organization. In other words, use-it-or-lose-it regulations are not permitted. You’ll have greater freedom if your policy doesn’t specify how time off is earned and it’s unclear if they’ve truly earned it.

Human Resources Laws in Minnesota That Affect Payroll

Minnesota’s human resources rules are not as complicated as its tax withholdings. The following are some of the highlights:

New Hire Reporting in Minnesota

Within 20 days of hiring, you must report newly recruited, rehired, and returning-to-work workers to the Minnesota Department of Human Services. There are three options for filing:

• Online at New Hire Reporting in Minnesota Employer Registration. If you choose to report electronically, you need to do this twice a month, not more than 16 days apart.
• Mail to New Hire Reporting in Minnesota Center, P.O. Box 64212, St. Paul, MN 55164-0212
• Send a fax to (800) 692-4473

Requirements for Lunch and Other Breaks

Every four hours of work, you must provide your workers a toilet break and a meal break of at least 20 minutes for lunch every eight hours of work. Breaks of fewer than 20 minutes are required to be recorded as hours worked and must be compensated.

Minors in the Workforce

You must keep a copy of a minor’s proof of age as part of your payroll records when you hire them. A birth certificate, driver’s license or permit, a school-issued age certificate, or a Form I-9 may all be used as proof.

Children under the age of 14 are only allowed to work as newspaper carriers (if they are over 11), in agriculture (if they are over 12 and have parental consent), as actors or models, or as juvenile sports officials (if over 11 and with parent permission).

Except in agricultural industries, Minnesota law prohibits minors under the age of 16 from working more than 40 hours per week or eight hours per day. They are not permitted to work before 7 a.m., after 9 p.m., or on school days during school hours (unless they have an employment certificate from the school). However, don’t schedule them to work beyond 7 p.m. on a school day to stay in accordance with federal law.

Large companies must not employ juveniles under the age of 16 after 7 p.m., for more than three hours per day, or for more than 18 hours per week if their annual sales income exceeds $500,000.

Unless they have their parent’s consent, minors 16 and 17 cannot work later than 11 p.m. on nights before school days or before 5 a.m. on school days. They may work as late as 11:30 p.m. or as early as 4:30 a.m. if they get authorization.

Minors are not permitted to work:

• Providing alcoholic beverages
• When it comes to explosives or dangerous items,
• Using power-driven equipment
• Construction sites or areas around them

Family Leave Act of Minnesota

Minnesota does not have a state-mandated parental leave policy. However, you must follow the federal Family and Medical Leave Act (FMLA). The FMLA permits you to take up to 12 weeks of unpaid leave in a 12-month period to bond with a new child, deal with major health issues, or, in certain situations, deal with problems from a family member on active duty in the military. Employers with at least 50 workers in the current or preceding year are covered by the federal FMLA. In our post on federal labor laws, we go through the FMLA in greater detail.

Sick and Parental Leave

Minnesota does not consider you an employer until you have at least one location with 21 or more workers. Employees are eligible for leave if they have worked for at least 12 months at one-half the full-time equivalent of their employment status.

Personal Leave of Absence

There is no law dictating the amount of sick time you must offer. The employment contract should include any services you supply. If you provide sick leave, it may be used to care for family members, such as in-laws and grandparents, albeit you can only utilize it for 160 hours per year.

Leave for School Conferences and Activities

You must allow workers up to 16 hours for school conferences and activities for their children, including foster children, during the course of a 12-month period. This time off does not need payment.

Parenting Time Off

You must give 12 weeks of unpaid leave for workers to connect with their children as well as prenatal care, issues during pregnancy or delivery, or complications arising from pregnancy or childbirth for female employees. This amount may be lowered if the employee takes paid parental, disability, personal, medical, or vacation leave for a total of less than 12 weeks. (You have the option of omitting this.) It may also be lowered if the employee takes FMLA leave.

Jury Service and Voting

You must provide workers ample paid time off to vote in elections. Primaries and general elections for national or state leaders are examples of elections. You don’t have to pay workers for jury duty time, but you can’t terminate or discipline them for obeying a summons or sitting on a jury.

Forms for Payroll

Like most states, Minnesota has online filing for most of its taxes and Forms for Payroll. However, it does have some options for mailing in limited cases.

W-4 Form for Minnesota

Minnesota will utilize its own form for income tax allowances beginning in 2020. In addition to the federal W-4, employees must complete a Form W-4MN. If the following applies to you, you must provide copies of the W-4MN to the Minnesota Department of Labor and Industry:

• More than ten withholdings are claimed by your employee.
• Your employee claims to be free from Minnesota withholding, and you estimate his or her weekly pay to be in excess of $200. (this does not apply to North Dakota or Michigan residents filing the Form MWR)
• You think your employee isn’t entitled to the quantity of allowances he or she has requested.

Other Payroll and Tax Forms in Minnesota

• Form MWR: For residents of Michigan and North Dakota working in Minnesota who wish to avoid having their Minnesota state taxes withheld.

Other forms may be found on the Department of Revenue’s website.

Federal Forms for Payroll

• W-4 Form: Used by businesses to figure out how much tax to withhold from employees’ paychecks.
• W-2 Form: This form is used to report total yearly earnings (one per employee)
• W-3 Form: Reports all workers’ total pay and taxes.
• Form 940: This form is used to report and compute the amount of unemployment taxes owed to the IRS.
• Quarterly income and FICA taxes deducted from paychecks are reported on Form 941.
• Annual income and FICA taxes deducted from paychecks are reported on Form 944.
• Non-employee pay information is included on 1099 forms to assist the IRS in collecting taxes on contract labor.

Conclusion

Taxes in Minnesota incomes on a graduated basis, with different rates on different portions of an employee’s salary. It also has separate rates for overtime, and even for non-resident entertainers. This can get intimidating, but the state offers tax tables, formulas, an online calculator, and even free courses to get you on the right track.

Frequently Asked Questions

What’s the easiest way to do payroll?

The easiest way to do payroll is by using the online software, QuickBooks. It’s also a good idea to find out if any of your employees use this software too, so you can have them sign up for it right away and avoid excessive paperwork later on.