Minnesota Tax & Labor Law Summary
Household employment requirements for families hiring a caregiver in Minnesota
Keeping up with Minnesota nanny taxes isn't too difficult, but it does require some work. To give you all the resources you need, we've compiled everything you need to know to stay compliant with federal, state and local household employment laws. And we're always here as an affordable solution if you'd like us to do the work for you.
When a family hires someone to perform duties in or around their home, they are considered a household employer. The IRS views the worker whether a nanny, health aide, housekeeper, senior caregiver, gardener, chef, personal assistant, estate manager, etc. as an employee of the family in nearly every case. Misclassifying an employee as an independent contractor (using Form 1099) is considered tax evasion, so please call us if you're not sure how to classify your worker.
MINNESOTA HOUSEHOLD EMPLOYMENT TAX RESPONSIBILITIES
Household employers have four primary tax responsibilities. These are sometimes referred to as the Minnesota nanny tax obligations:
1. Withhold Social Security and Medicare taxes from their employee's paycheck each pay period. Federal and state income taxes should be withheld based on the employee's selections on Form W-4 and Form W-4MN.
* It is not legally required that income taxes be withheld. However, we strongly advise it so that the employee does not have a large tax burden at the end of the year and is not subjected to underpayment penalties.
2. Pay the employer's portion of Social Security and Medicare, as well as federal and Minnesota unemployment insurance taxes (FUTA and SUTA). Minnesota household employers are also required to pay a small workforce enhancement fee (WEF).
Good news! There are some tax breaks for dependent care that can help offset these employers taxes. For an estimate of your employer costs and your tax breaks - as well as your employee's take-home pay - give us a call.
3. File tax forms with the Minnesota Department of Revenue and the Department of Employment and Economic Security, typically on a quarterly basis, and with the IRS in April, June, September and January. With these filings, employers remit (pay) the employee taxes withheld and the employer taxes accrued.
4. At the end of the year, prepare Form W-2 and distribute to each employee, file Form W-2 Copy A and Form W-3 with the Social Security Administration and file a Schedule H with your personal income tax return.
MINNESOTA LABOR LAW REQUIREMENTS
The Fair Labor Standards Act (FLSA) provides the framework for federal and state wage and hour law. Household employees are classified under the FLSA as non-exempt workers. Non-exempt workers in all 50 states are covered by the rules and protections of the FLSA. Minnesota may supplement federal law with additional state and municipal labor laws.
Minimum wage in Minnesota is currently $8.04 per hour.
Minneapolis minimum wage rate: $11.00 per hour
Note: Whenever more than one rate applies, employers are required to pay the higher rate.
Minnesota Overtime Requirements
Overtime requirements are not determined by the amount of hours or by the type of pay (hourly or salary); they are determined by the type of work performed. The FLSA requires domestic workers be protected by overtime laws. The requirements for Minnesota household employers are as follows:
- The standard workweek is defined as 40 hours in a 7-day period.
- Minnesota employees should be paid at least 1.5 times the regular hourly rate (time-and-a-half) for all hours worked over 40 in a workweek.
- Overtime compensation is not required for live-in employees until they reach 48 hours in a workweek.
- Overtime is not required to be paid when work is performed on a holiday.
St. Paul Paid Sick Time
Household employers in St. Paul are required to provide up to 48 hours of paid sick time to their employees each year. Sick time accrues at 1 hour for every 30 hours worked or employers can offer the full 48 hours upfront. Unused accrued hours must be carried over to the following year, but employers can limit sick time usage to 80 hours per year. Any unused sick time does not need to be paid out upon termination. Finally, the city requires employers to give this notice to new employees upon hire.
Minneapolis Sick Time
Household employers in Minneapolis are required to provide up to 48 hours of unpaid sick time to their employees each year. (Sick time is required to be paid for employers with 6 or more employees). Sick time accrues at 1 hour for every 30 hours worked and must be carried over to the following year. Employers can limit sick time usage to 80 hours per year. Finally, the city requires employers to display this notice.
Wage Notice Requirement
Minnesota household employers are required to provide their employees with a written wage notice at the time of hire. The notice must include:
- The employer’s name, address and phone number.
- The employee’s employment status and whether they are exempt from minimum wage or overtime.
- The employee’s hourly rate of pay.
- How often the employee will be paid (weekly, bi-weekly, etc.) and what day of the week they will be paid.
- The date of the employee’s first pay day.
- Number of paid vacation days, sick days and other forms of paid time off.
- The deductions that will be made from the employee’s pay, such as taxes, meals and lodging.
Employers must keep a copy of the wage notice once it is signed by their employee. Any changes made to the wage notice must be provided to the employee in writing prior to the changes taking effect.
Pay Stub Requirement
Household employers in Minnesota are required to provide their employees with a pay stub each pay period. The pay stub must include:
- The employee’s name.
- The employer’s name, address and phone number.
- The end date of the pay period related to the pay stub.
- The total number of hours worked during the pay period.
- The employee’s hourly rate of pay.
- The employee’s gross wages before deductions.
- The taxes and other deductions made from the employee’s gross wages.
- The employee’s net pay after all deductions have been made.
Employers must keep records of their employees’ pay stubs and make them available to their employees within 72 hours of being requested.
The current federal mileage reimbursement rate is 58 cents per mile. This rate, which covers the cost of gasoline as well as general wear and tear on the car, should be used to calculate reimbursement payments to an employee who drives their own vehicle while on the job. Mileage reimbursement is not considered taxable compensation, so neither the employee nor the employer is required to pay any taxes on that portion of the compensation.
Note: Miles driven while commuting to and from the jobsite are not considered on-the-job. If the employer reimburses the employee for commuter mileage, it is considered taxable compensation.
INSURANCE FOR MINNESOTA HOUSEHOLD EMPLOYERS
Workers' Compensation Insurance
Household employers in Minnesota are required to carry a workers' compensation insurance policy if their employee earns $1,000 or more during a calendar quarter. It's very important insurance, which assists with medical expenses and lost wages if an employee has a work-related injury or illness. It also provides protection to the employer since workers who accept benefits generally forfeit their right to sue the employer regardless of fault. Whether it's required in your situation or not, we recommend obtaining coverage. As part of the HomePay setup process, we can guide you to a convenient, affordable solution.
Minnesota unemployment insurance is a state-managed program that provides financial assistance to help laid-off workers make ends meet until they can find another job. This insurance is funded through taxes that employers are required to pay on wages paid to employees. These taxes flow into a general fund, and unemployment benefits are distributed from the fund to employees who are let go from their job due to no fault of their own. The Minnesota Department of Employment and Economic Security (DEED) determines whether or not an applicant qualifies for benefits after reviewing their online or paper application and/or by conducting a telephone interview. Benefits paid to a former employee by the DEED may trigger a future tax rate increase for the employer.
Household employers in Minnesota are NOT required to pay for their employee's health insurance. However, there is a tax incentive to do so. Families with only 1 employee can make contributions toward their employee's health insurance premiums and treat the amount as non-taxable compensation. In this scenario, neither the employee nor the employer are required to pay any taxes on that portion of the compensation.
Note: Employers with 2 or more employees must set up a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) or purchase a policy through SHOP (Small Business Health Options Program) to gain this benefit. Visit our health insurance page for more information about these options.
The information herein is general in nature and may not be applicable to or suitable for your specific circumstances. Accordingly, the information is not intended to be providing legal or tax advice, and should not be relied upon without the advice and guidance of a professional tax or legal advisor.
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