Employer of record in Minnesota: PEO rules, payroll registration and what the client still owns (2026)

As of October 2026, Minnesota has no general license for professional employer organizations (PEOs) or employers of record. Instead, Minn. Stat. § 79.255 requires any business that leases employees to other businesses in Minnesota to register with the Commissioner of Commerce, for a $100 fee, before it can obtain workers' compensation insurance. For unemployment insurance, § 268.046 assigns the client's own tax account to the PEO for the length of the contract, and Minnesota Paid Leave premiums (0.88% of wages in 2026 and 2027) run through that same account. Minnesota also voids any contract term that stops you from hiring the worker directly.

This page is for a company outside Minnesota, or a staffing firm, deciding whether to employ a Minnesota worker through an EOR or PEO or to register itself. The general differences between an EOR, a PEO and payrolling are in what is an employer of record and payrolling services explained. The full state checklist is in hiring employees in Minnesota, agency rules are in staffing agency license in Minnesota, and the 2027 changes are in new hiring laws in Minnesota for 2027.

Minnesota employer of record and PEO rules at a glance

Does Minnesota license PEOs or employer of record companies?

Not with a general license. The one registration is tied to workers' compensation. Minn. Stat. § 79.255 says a business "which provides staff, personnel, or employees to be employed in this state to other businesses pursuant to a lease arrangement or agreement shall, before becoming eligible to be issued a policy of workers' compensation insurance ... register with the commissioner of commerce." The statute does not use the terms PEO or employer of record; it turns on leasing employees to another business.

• What the registration contains. The lessor's names, addresses and tax ID; every name used in the last five years; owners of 5% or more, now and in the last five years; and every cancellation or nonrenewal of its workers' compensation coverage in five years, or a sworn affidavit from its chief executive that there were none (subd. 1). Changes must be reported (subd. 3).
• Fee. "A registration or exemption certificate fee of $100 shall be paid" (subd. 10). We found no renewal period in the statute.
• Who cannot register. A lessor whose workers' compensation coverage was terminated in the past five years, anywhere, because leasing was being used "to avoid premium otherwise payable by lessees" (subd. 2). Knowingly using leasing to deprive insurers of premium is a misdemeanor (subd. 7).
• Temporary staffing exemption. A firm supplying workers "for the purpose of temporarily supporting or supplementing a client's work force," for absences, skill shortages, seasonal workloads or projects, can get a certificate of exemption by letter, "provided that the arrangements or agreements do not involve the lease-back of the client's employees" (subd. 9).
• No advertising. A registered firm may not mention the registration in advertising or marketing (subd. 6), so a sales deck is not evidence either way.

The Commissioner of Commerce keeps a list of registered lessors (subd. 4). Ask the provider for its registration or exemption certificate and confirm it with the Department of Commerce. You can also check whether a business has Minnesota workers' compensation coverage in the Department of Labor and Industry's insurance lookup.

Who pays Minnesota unemployment tax on an EOR or PEO worker?

The PEO pays, but on your account. Minn. Stat. § 268.046 covers "Any person that contracts with a taxpaying employer to have that person obtain the taxpaying employer's workforce and provide workers to the taxpaying employer for a fee." That is a description of the arrangement, not a label, so it applies to a provider that calls itself an employer of record. In practice:

• Your account is assigned to the PEO. For the length of the contract, the PEO is assigned your tax account, keeps it separate from its other accounts, reports the wages on it and pays "at the tax rate computed for that account." If you have no Minnesota account, one is registered in your name at the new employer rate and then assigned.
• Workers outside the contract. Any of your Minnesota workers the PEO does not cover are reported by you as a separate unit under the same account.
• Notice and contract terms. The PEO notifies the state electronically within 30 calendar days of the contract's execution or termination, and the contract itself "must specifically inform" you of the account assignment.
• When it ends. On termination, "the tax account is, as of the date of termination, immediately assigned to the taxpaying employer," and the switch is not a separation from employment for any worker.

Section 268.046 also says the § 79.255 temporary staffing exemption "does not determine the application of this section," so a provider cannot rely on its workers' compensation exemption to avoid using your account.

How does Minnesota Paid Leave work with a PEO?

Minnesota Paid Leave premiums began January 1, 2026. The program says it "has partnered with Unemployment Insurance (UI) to use a system employers already know to collect quarterly wage detail reports and premium payments," per its employer duties page. The Paid Leave law's definition of employer includes "the taxpaying employer as described in section 268.046, subdivision 1," the PEO's client (Minn. Stat. § 268B.01, subd. 18). Because the PEO reports on your UI account, Paid Leave wage detail and premiums normally run on your account too. Confirm in writing who designates the Paid Leave Administrator in the UI employer account and who answers leave requests.

• Rate. "There are only two rates: the standard rate of 0.88%, and a small employer rate of 0.66%," and "For 2027, the rate will stay at 0.88% of covered wages, and 0.66% for Paid Leave small employers," per Paid Leave. Employees can be charged up to 0.44% of wages.
• Small employer rate. To qualify you must employ 30 or fewer workers in each quarter and pay an average wage of no more than 150% of the statewide average, per the small employer page, which says the designation is based on the wage detail reports in your employer account.
• Notice. Each employer gives new employees the department's written Paid Leave notice within 30 days of the start of employment, in the employee's primary language (§ 268B.26).

Who carries workers' compensation in Minnesota?

Every employer, from the first employee. The Department of Labor and Industry says "There is no minimum number of employees an employer must have before insurance is required"; an employer with one part-time employee generally must have coverage under Minn. Stat. § 176.181. An employee leasing firm cannot be issued a policy until it has registered under § 79.255 (or holds an exemption). Ask whose policy covers your Minnesota worker, get the certificate, and check the carrier in DLI's insurance lookup.

Which Minnesota registrations, reports and notices still apply?

• Withholding. Register for a Minnesota withholding tax ID with the Department of Revenue. Employees "must complete Form W-4MN when they begin employment," and without one the employer withholds as single with zero allowances, per Revenue's W-4MN page.
• New-hire reporting. Within 20 calendar days of hire, for any employee who lives or works in Minnesota (§ 142A.29).
• Wage notice at hire. "At the start of employment," a written notice with the pay rate and basis, paid time-off accruals and terms, deductions, paydays and the employer's legal name and contact details, which the employee signs (§ 181.032). Agree which entity's name and address go on it.
• Earned sick and safe time. Minnesota requires paid sick and safe time and a notice of it; see the Minnesota hiring checklist.
• E-Verify. Only vendors on state service contracts over $50,000 must certify use; see E-Verify requirements in Minnesota.

What does the client company still own in Minnesota?

Minnesota has no PEO act allocating duties, so the contract does it, and Minnesota's hiring rules follow whoever recruits and decides. In practice that is usually you:

• Job postings. Employers with 30 or more Minnesota employees post a starting salary range and a benefits description; see Minnesota pay transparency law. Asking about pay history is banned; see Minnesota salary history ban. Ask whose headcount counts toward the 30.
• Screening. Criminal history questions wait until the applicant is selected for an interview (see ban the box in Minnesota), and drug and cannabis testing rules are in Minnesota drug testing laws.
• Non-competes and no-hire terms. Minnesota voids most non-competes (see Minnesota non-compete law), and § 181.9881 says "No service provider may restrict, restrain, or prohibit in any way a customer from directly or indirectly soliciting or hiring an employee of a service provider," making such terms "void and unenforceable," with a narrow exemption for certain software consulting placements. That matters when you later want to bring the worker onto your own payroll.
• Co-employment liability. Both businesses can face wage and discrimination claims; see joint employer liability for staffing agencies.
• Federal payroll taxes. The IRS says the client "generally remains responsible" for employment taxes unless the PEO is certified; see the IRS's CPEO public listings.

When is registering your own company in Minnesota the better route?

With a PEO, Minnesota already puts the unemployment account, and with it the Paid Leave premiums, in your name. Registering yourself adds a Revenue withholding account, W-4MN forms, new-hire reports, the wage notice and your own workers' compensation policy from the first employee. That route tends to win when you expect several Minnesota hires or already run multi-state payroll. A PEO fits a small team whose payroll, benefits and comp you want handled together; a temporary staffing firm with a § 79.255 exemption fits a defined assignment.

Questions to ask an employer of record or PEO before signing for Minnesota

1. Are you registered with the Commissioner of Commerce under § 79.255, or do you hold an exemption certificate? Send us a copy.
2. Will you take over our unemployment tax account under § 268.046, and have you filed the 30-day notice?
3. Who is our Paid Leave Administrator, who handles leave requests, and how are premiums split with employees?
4. Who is the workers' compensation carrier for our Minnesota worker? Send the certificate.
5. Who registers for withholding, collects the W-4MN and gives the § 181.032 wage notice?
6. Does the contract include any fee or restriction on hiring the worker directly, and how does it comply with § 181.9881?
7. Are you an IRS-certified PEO, and who is liable for federal employment taxes if a deposit is missed?

Employer of record rules in other states: Arkansas, California, Florida, Hawaii, Maryland, Michigan, Mississippi, Nebraska, New York, Oregon, Rhode Island, South Carolina, Tennessee, Texas and Utah.