The state measures your employer size the day after the fiscal year ends.
Minnesota’s phased approach to increasing the minimum hourly wage took another step forward on August 1. Now, large employers must pay at least $9.00 per hour, while small employers must pay $7.25. A large employer is any entity with annual gross revenue of $500,000 or more, while small employers gross less than $500,000 annually.
“The threshold of distinguishing large employers from small ones was $625,000 prior to the law change, so some businesses who were small employers under the old law may not realize that they are now considered large employers and subject to the $9.00 wage,” says Dan Kidney, a technical tax director with CliftonLarsonAllen.
Practical considerations for determining employer size
There are practical considerations for how and when to measure whether your entity is a large or small employer.
“The state measures your employer size the day after your fiscal year ends (whenever that day falls),” says Kidney. “If you have $500,000 in receipts during that time, then you are a large employer in the state of Minnesota.”
Businesses must measure this $500,000 threshold using either their four quarterly tax estimates, or their audited financial statement, covering their most recently-ended fiscal year. “Based on our informal discussions with the Minnesota Department of Labor, this $500,000 threshold will be measured based on a company’s fiscal year, rather than on a ‘rolling’ basis of a company’s four most recently-completed quarters,” says Kidney.
Since tax estimates and audited financials are available at different times during the year, it can make complying with the law challenging for companies whose employer size status may differ depending on which source is used.
“Some businesses may estimate receipts of $490,000 immediately after their year-end using their quarterly tax estimates, and pay wages assuming the small employer category applies, only to find out several months later that their audited financial statements for that same year actually indicate receipts of $510,000,” says Kidney. “Cases like that are tricky, but until further guidance is issued by the Department of Labor, we suggest businesses in situations like this to take a conservative approach, and consider paying wages using the large employer category.”
How to calculate your employer size
The Minnesota Department of Labor calculates gross annual revenue beginning with the employers’ past four quarterly tax estimates or previous year audit statement, adding the gross revenue for the four most recent quarters, and then subtracting any separately listed excise taxes. If the resulting number is $500,000 or more, the employer must pay the large employer wage rate outlined above.
Here are the rates for all of Minnesota’s employer classifications:
| Provision | Previous Law | New Law |
|---|---|---|
| Large employer | $6.15/hour | $8.00/hour on August 1,2014 $9.00/hour on August 1, 2015 $9.50/hour on August 1, 2016 |
| Small employer | $5.25/hour | $6.50/hour on August 1, 2014 $7.25/hour on August 1, 2015 $7.75/hour on August 1, 2016 |
| 90-day training wage (18 and 19 year olds) | $4.90/hour | $6.50/hour on August 1, 2014 $7.25/hour on August 1, 2015 $7.75/hour on August 1, 2016 |
| Youth wage (under 18) | No youth wage | $6.50/hour on August 1, 2014* $7.25/hour on August 1, 2015 $7.75/hour on August 1, 2016 *Federal minimum-wage rate may apply. |
| Indexed to inflation | No inflationary increases | Indexing begins January 1, 2018 |
How we can help
Questions are likely to arise if your entity is on the cusp of being a large employer. We can help you determine your employer category and answer any of your questions about this law.