11 Vital Steps When Hiring New Employees in Minnesota

Barbara C. Neff

Whether you’re bringing on your first or your 100th new employee, the employer-employee relationship comes with a wide range of legal obligations, under both federal law and state law. Read on to learn about 11 critical steps Minnesota employers should take to stay on the right side of those laws and obligations.

Register with the tax authorities

If you haven’t already, you’ll need to register as an employer with the Internal Revenue Service and the Minnesota Department of Revenue.

You must obtain a federal employer identification number (FEIN) from the Internal Revenue Service before you can register with Minnesota. You apply for a FEIN with IRS Form SS-4, “Application for Employer Identification Number.”

You can then apply for a Minnesota Tax ID number online, by calling the phone number (651) 282-5225 or (800) 657-3605, or by filing a paper Application for Business Registration. In addition to your FEIN, you’ll need your:

Check employee eligibility

Under federal law, every new employee must complete the U.S. Citizenship and Immigration Services (USCIS) Form I-9, “Employment Eligibility Verification.” The employee is required to fill out Section 1 of the form by their first day of employment. Employers need to complete Section 2 by the end of the third business day after the employee begins work. Keep the form on file for three years after the date of hire or one year after the employment ends, whichever is later.

Minnesota employers generally aren’t required to use the federal E-Verify system to check eligibility.

Submit your new hire report

The federal Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) requires all employers to report certain information on their new employees to a state agency. The information is used to locate parents who owe child support.

In Minnesota, you must report all newly hired, re-hired, and returning to work employees to the Minnesota Department of Human Services within 20 days of the date they are hired, rehired, or returned to work. While the state welcomes reports on independent contractors, you’re not required by law to submit them.

You can file your reports online at the Minnesota New Hire Reporting Employer Registration. Alternatively, you can mail or fax a copy of the employee’s federal Form W-4 to the Minnesota New Hire Reporting Center (make sure that boxes 8 and 10 on the form are completed with your information):

Minnesota New Hire Reporting Center
P. O. Box 64212
St. Paul, MN 55164-0212

Fax: (800) 692-4473

Employers that submit reports electronically must do so in two monthly transmissions not more than 16 days apart.

The fine for noncompliance with the new hire reporting requirement can be up to $25 per newly hired employee. In the event of a conspiracy not to report between the employer and employee, the penalty can be up to $500 per newly hired employee.

Make the Minnesota-required support inquiry

Under state law, employers are required to ask all new employees whether they have court-ordered medical support or dependent insurance obligations that must be withheld from their income, as well as the terms of any such court order.

If amounts for medical support must be withheld, the employer must apply the appropriate withholding. If the employee is required to obtain dependent insurance, you must inform the employee about the application process and enroll the employee and the dependent(s) in the plan. Employers are required to make such withholdings within a specific time period. Note that there are limits on the percentage of wages that can be withheld.

Comply with Minnesota’s wage theft law

State law requires Minnesota employers to provide each employee with a written notice at the start of their employment with the following required information about their employment status and terms of employment:

  • Employee’s employment status 
  • Whether an employee is exempt from minimum wage, overtime, and other state wage and hour laws—and on what basis 
  • Number of days in the employee’s pay period and the regularly scheduled payday
  • Date the employee will receive the first payment of wages earned
  • Employee’s rate or rates of pay and the basis thereof, including whether the employee is paid by the hour, shift, day, week, salary, piece, commission, or other method—and the specific application of any additional rates
  • Allowances, if any, that may be claimed for permitted meals and lodging
  • Provision of paid vacation, sick time, or other paid time off (PTO), how the paid time off will accrue, and terms for its use
  • A list of deductions that may be made from the employee’s pay
  • Employer’s legal name and the operating name, if different
  • Physical address of employer’s main office or principal place of business and a mailing address, if different
  • Employer’s telephone number

You must keep a copy of the notice signed by each employee. You can use the state-provided example notice or create your own. You’re also required to provide employees in writing any changes to the information in the notice before the date the changes take effect.

In addition, Minnesota law requires employers to provide earning statements (also known as paystubs or check stubs) in writing or by electronic means at the end of each pay period. Earning statements should include the following information:

  • Name of the employee
  • Total hours worked by the employee in the pay period
  • Rate or rates of pay, including whether the employee is paid by the hour, shift, day, week, salary, piece, commission, or other method
  • Allowances claimed for meals and lodging
  • Gross pay earned by the employee in the pay period
  • Net pay after all deductions are made
  • List of deductions (taxes, insurance, union dues, other) made from the employee’s pay
  • Pay period end date
  • Employer’s legal and operating name
  • Employer’s telephone number
  • Physical address of the main office or principal place of business and a mailing address, if different

You must pay all wages—including salary, earnings, and gratuities—earned by an employee at least once every 31 days and all commissions earned by an employee at least once every three months on a regular payday.

Determine your Minnesota unemployment insurance responsibilities

Employers generally must register and pay quarterly unemployment insurance tax to the Minnesota Unemployment Insurance Trust Fund. However, the following types of employment aren’t covered for Minnesota unemployment insurance tax purposes:

  • Services performed by a sole proprietor’s spouse, parents, or children under the age of 18. A sole proprietor paying only these individuals doesn’t need to register for an employer account.
  • Services performed by the partners of a partnership. A partnership paying only these individuals does not need to register.
  • Wages of owner/officers or members who own 25 percent or more of a corporation or LLC. A corporation or LLC paying only these owners/officers or members doesn’t need to register. However, employers may voluntarily extend coverage to these employees by electing optional coverage for them.

You can register online or by calling (651) 296-6141. You must register as soon as possible after the first wages are paid and before the due date of the first quarterly wage detail report you’re required to submit. After you register, you’ll receive a rate notice. Use this rate to determine your liability.

You’ll receive a Tax Rate Determination in the mail every December with the upcoming year’s unemployment insurance tax rate components (your experience rating and the base rate for all employers that ranges from 0.10% to 0.50%) and taxable wage base. The wage base for 2023 is $40,000, meaning you must pay taxes on the first $40,000 of each employee’s annual wages.

The tax rate for new employers that haven’t had employees long enough to be assigned an experience rating is based on the average rate for the employer’s industry. The 2023 rates range from 1% to 8.90%.

Once you qualify for an experience rating, your tax rate will be determined by dividing the total unemployment benefits paid to former employees by the total taxable wages paid to all of your employees.

If you’ve been assigned an experience rating and have had benefits paid to former employees during the experience rating period, you can make a “buydown payment” to cancel all or part of the benefits paid charges on your account to reduce your unemployment insurance tax rate.

You must file quarterly wage detail reports online, even if you paid no wages or had no employees during the quarter. Due dates are the last day of the month following the end of the calendar quarter.

Understand Minnesota’s income tax withholding requirements

Minnesota employers must withhold state income taxes from their employees’ pay. Each employee should complete Form W-4MN, “Minnesota Employee Withholding Allowance/Exemption Certificate,” and federal Form W-4 (see step 8 below) in some situations.

You must send copies of Form W-4MN to the Minnesota DOR if the employee:

  • Claims more than 10 Minnesota withholding allowances,
  • Claims to be exempt from Minnesota withholding and you reasonably expect the employee’s wages to exceed $200 per week—unless the employee is a resident of reciprocity states Michigan or North Dakota and has completed Form MWR, Reciprocity Exemption/Affidavit of Residency for Tax Year 2023, or
  • You believe the employee is not entitled to the number of allowances claimed.

Employees who claim exemption from withholding must renew the exemption annually by filing new Forms W-4 or W-4MN by February 15 each year.

You must keep copies of Form W-4MN in your files. The forms serve as proof that you’re withholding income taxes according to the employee’s instructions; they should be available for inspection if the IRS or the state requests it.

You’ll use the information on the forms and the Minnesota withholding tables to determine the amount of state taxes to withhold. You can make your Minnesota tax deposits electronically using the Minnesota Department of Revenue e-Services Payment Voucher System, by telephone at (800)570-3329, or by mailing a payment voucher. Note that some employers are required to pay electronically.

Employers must deposit Minnesota withholding tax following a semiweekly or monthly schedule. Your due dates depend on how much tax you withheld and when the IRS requires you to deposit. Review the schedule on the Minnesota Department of Revenue webpage

Most employers are required to file withholding tax returns quarterly. Quarterly and annual deadlines are posted on the Minnesota Department of Revenue website (linked above) as well. To qualify for annual filing, you must have a filing history of $500 or less of withholding in the prior calendar year.

Minnesota quarterly withholding returns must be filed online through the Minnesota Department of Revenue e-Services or by phone at 800-570-3329. A quarterly return must be filed even if you paid no wages subject to withholding, had no employees during the quarter, or did not withhold tax.

You’ll need to report the following:

  • Total amount deposited for the period, including any credit carried forward from the previous period
  • Wages paid during the period
  • Dates you paid your employees and how much you withheld on those dates
  • Number of employees during the period

You must also file an Annual Withholding Tax Return with the Minnesota Department of Revenue. You can file online or by phone at (800) 570-3329.

Prepare for your federal payroll tax obligations

In addition, employers generally must withhold federal income tax from their employees’ pay. You should collect IRS Form W-4, “Employee’s Withholding Certificate,” from each new hire, on or before the day they start work. The form is used to determine how much of their pay should be withheld for federal income taxes. Make sure your employees complete it properly.

You aren’t required to submit Form W-4 to the IRS, but you must keep a copy on file for at least four years. The form serves as verification that your federal income tax withholding matches the employee’s instructions and needs to be available for inspection if the IRS ever requests it. 

You also must withhold each employee’s share of Social Security and Medicare taxes under the Federal Insurance Contributions Act (FICA). These are often referred to as employment taxes.

FICA is a federal tax that both employers and employees pay. It includes two taxes: Medicare tax and Social Security tax. The 2023 tax rates for both employees and employers are 6.2% of the first $160,200 of an employee’s earnings for Social Security (for a total of 12.4%) and 1.45% of all wages for Medicare (2.9% total).

You also may be required to withhold the Additional Medicare Tax. Employers must withhold the 0.9% tax from an individual’s wages paid in excess of $200,000 in a calendar year.

You must deposit federal income tax withheld and both the employer and employee Social Security and Medicare taxes. The IRS deposit schedules are either monthly or weekly, and you must determine which schedule you’re required to use before the beginning of each calendar year.

In addition, you may be required to pay federal unemployment taxes (FUTA) if you:

  • Paid wages of $1,500 or more to employees in any calendar quarter during the current or previous tax year, or
  • Had one or more employees for at least some part of a day in any 20 or more different weeks in the previous year or 20 or more different weeks in the current tax year, counting all full-time, part-time, and temporary employees. 

The amount due is 6% of the first $7,000 of an employee’s wages during the year.

You also need to file your IRS Form 941, “Employer’s Quarterly Federal Tax Return,” and IRS Form 940, “Employer’s Annual Federal Unemployment Tax Return.” Deposits for the federal unemployment tax are required for the quarter within which the tax due exceeds $500. The tax must be deposited by the end of the month following the end of the quarter. 

Form 940 is due by January 31, but, if you deposited all FUTA tax when due, you have until February 10 to file.

File your initial Form 941 for the quarter in which you first paid wages that are subject to Social Security and Medicare taxes or subject to federal income tax withholding. The form is due by the last day of the month that follows the end of the quarter. If you deposited all taxes by the deadline, you have 10 additional calendar days to file the return. For example, you could file Form 941 by May 10 for the first quarter—as opposed to April 30 if you didn’t deposit all taxes due by the deadline.

Going forward, you must file for every quarter, regardless of whether you have any taxes to report—unless you’re a seasonal employer or are filing your final return.

You must also furnish a completed wage and tax statement (Form W-2, “Wage and Tax Statement,” or Form 1099-NEC, “Nonemployee Compensation”) to each employee by the last day of January each year. Send a copy to the Minnesota DOR, too.

Obtain workers’ compensation insurance

Minnesota law generally requires all employers, regardless of the number of employees, to have workers’ compensation insurance to provide benefits for those who suffer from work-related injuries. The state does allow some limited exceptions to the workers’ compensation insurance requirement, though. For example, some business owners aren’t required to carry workers’ compensation insurance on themselves or certain relatives if specific requirements are met.

Workers’ compensation insurance in Minnesota may be purchased through an insurance agent or directly from an insurance company. Use the Minnesota Department of Commerce “License Lookup Directory” tool to determine if a company or individual is licensed to provide workers’ compensation insurance.

If you can’t obtain insurance in the voluntary market, assigned risk-plan coverage (sometimes referred to as “assigned risk-pool” insurance) can be obtained with the assistance of an insurance agent or by calling the Minnesota Workers’ Compensation Insurers’ Association at (952)897-1737. 

Self-insurance is another option, but you must first obtain approval from the Minnesota Department of Commerce. You’ll have to establish your financial ability to provide the necessary benefits. 

Satisfy your labor law poster requirements

Federal law may require you to display certain posters that cover the following topics in a conspicuous location in your workplace:

The U.S. Department of Labor has an online “poster advisor” to help employers determine which posters they need to display.

Minnesota law also requires posters that cover certain topics to be displayed, including:

Review the relevant employment laws

As an employer, you’ll be subject to a wide variety of employment laws, including the following federal laws:

Minnesota has its own employment laws. For example, the minimum wage is $10.59 per hour for large employers (generally, those with gross revenues exceeding $500,000) and $8.63 per hour for others. Additional state employment laws include:

We know these steps can seem like a lot to handle when you’re trying to run a business and improve profitability. The good news is that automated tools and services like the ones Gusto offers can ease the burden. We’re here to help!

Barbara C. Neff has been writing about a variety of legal and other topics since 2001. She has a law degree and a master's degree in journalism.
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