The Minnesota Unemployment Insurance Program protects workers against job loss by providing temporary income support to those who become unemployed through no fault of their own. Unemployment insurance (UI) benefits are available to those workers who have performed services covered under the law for a covered employer. Virtually all Minnesota employers are required by law to pay contributions to a statewide UI fund based on their payroll under an experience weighted formula. Money from this fund is used to pay unemployment benefits to eligible employees. The costs of UI program administration are defrayed by federal employer taxes collected under the Federal Unemployment Tax Act (FUTA). The Minnesota Department of Employment and Economic Development (DEED) is responsible for supervising and administering Minnesota’s UI program.
An employer’s contribution to the state is based on experience ratings, which relate employer taxes to the cost of providing unemployment benefits to its employees. Employers that have fewer employees receiving unemployment benefits are subject to lower rates. Thus, it is to the employer’s benefit to contest those claims that are without merit. Employer contributions (in the form of quarterly tax payments) are the primary funding source for UI benefit payments. An employee withholding tax is a secondary funding source. Reports and contributions are due at the end of the month following each calendar quarter (April 30, July 31, October 31, January 31).
In general, businesses that provide employment covered under the provisions of the UI law must register at both the state and federal levels and establish a Minnesota Unemployment Insurance Employer Account as soon as possible after the first wages covered by the UI program are paid to a covered employee. (More information is available later in this chapter as to what constitutes covered wages and covered employees.) In every case, an employer must complete its initial registration prior to the due date of the first quarterly wage report that the employer is required to submit. Civil and criminal penalties apply to employers who willfully fail or refuse to file a required registration document with the Department of Labor and Industry.
Certain employers may have requirements that are different than or in addition to the general registration requirements.
Unless an agricultural employer is already registered under the Federal Unemployment Tax Act, that employer must register for an employer account with the State of Minnesota when it meets either of the following conditions:
Employers of domestic services, which services include administration to “personal wants and comforts of the employer and other household members” – such as cooks, waiters, maids, housekeepers, babysitters, gardeners, valets, chauffeurs – must pay state UI tax if $1,000 in gross wages (which includes the value of any employer-provided room, board, and other advantages) is paid to domestic workers in a calendar quarter.
Services provided to a sole proprietor by the proprietor's parents, spouse, or child older than age 18 are not covered by Minnesota’s UI tax, and a sole proprietor who employs only these types of employees need not register.
A partnership that pays only its partners for services performed for the partnership need not register.
A corporation or LLC that pays only its owners, officers, or members who own more 25% of the corporation or LLC does not need to register.
These entities are required to submit UI wage reporting, but they are also assigned reimbursing accounts unless they elect (for a minimum of 24 months) to pay UI tax.
Under Minnesota law, nonprofit employers – including religious, charitable, educational, or other organizations described under Section 501(c)(3) of the Internal Revenue Code - must pay quarterly unemployment insurance tax unless they elect to reimburse benefits. As with the general rule for registration, nonprofit organizations must register with the State of Minnesota and submit quarterly wage detail reports.
Employers can register for an employer account either online or by phone. Employers electing to register online can locate the registration form at:
Employers wishing to register by phone can call (651) 296-6141 and select option 2 from the automated menu.
Tax liability under the UI law is incurred when an employer pays the wages to persons in covered employment or engages in the actions described above, which provide for automatic coverage liability. However, the employee must also be working within a covered employment in order to be eligible for benefits.
The law governing Minnesota’s UI program defines employment as all personal service performed for a person or organization in return for compensation in the form of covered wages. (See below for more discussion as to what constitutes “covered wages.”)
Covered employment includes:
The definitions of “employment” are fairly uniform under the UI laws of most states, but the administrators of the state agencies do not always interpret the term in a uniform way, thus resulting in some conflicts. In some cases, dual coverage has resulted in double taxation of the employer for the same service, and in other cases some services that should have been covered have not been covered by the law of the proper state, or of any other state. This confusion has resulted in a loss of benefit rights to the worker.
First, it is necessary to determine whether the state service is localized in any state. Only if the service is not localized in any state is any other test necessary. If the service is not localized, it is necessary to determine in what state the individual’s base for operations is located, and whether the individual performs any service in that state.
If the individual has no base for operations or if no service is performed in the state in which the base for operations is located, then it is necessary to look to the state from which the individual’s service is directed or controlled. It is only when coverage is not determined by any of these tests that residence becomes a factor.
In short, it may be necessary to apply the four tests herein to determine which state's laws govern UI coverage for a particular employee.
Service is localized and covered in Minnesota if it is performed entirely within Minnesota. If it is performed both within and outside Minnesota and the service performed outside Minnesota is incidental to the service performed within Minnesota, then it will be covered by the Minnesota UI law. Service is considered incidental, for example, if it is temporary or transitory in nature, or consists of isolated transactions.
In determining whether the service of an employee is incidental or transitory in nature, some of the factors to be considered are:
Because of the wide variation of facts in each particular situation, no fixed length of time can be used as a yardstick in determining whether or not the service is incidental. Examples of localized service include:
If an employee’s service is not localized in any state, it is necessary to apply the second test: Does the individual perform some services in the state in which the “base of operations” is located?
A base for operations for the individual should not be confused with the place from which service is directed or controlled for the employer. The “base for operations” is the place or fixed center, of a more or less permanent nature, from which the employee starts work and to which the employee customarily returns in order to receive instructions from the employer or communications from customers or other persons or to replenish stocks and materials, to repair equipment, or to perform any other functions necessary to the exercise of trade or profession at some other point or points. The base for operations may be the employer’s business office, which may be located at the employer’s residence, or the contract of employment may specify a particular place at which the employee is to receive directions and instructions.
This test is applicable principally to employees, such as salespersons, who constantly travel in several states.
Some employees have no base for operations, while others may have such a base but do not perform any service in the state in which it is located. It is then necessary to find out whether any of the individual’s service is performed in the state from which service is directed and controlled. The place from which an employee's service is directed and controlled is the place at which the basic authority exists and from which the general control emanates. It is not necessarily the place at which a manager or foreman directly supervises the performance of services under general instructions from the place of basic authority.
Examples of service not localized in any state, where coverage is decided by the place of direction and control test include:
A contractor with a main office in Minnesota is regularly engaged in road construction work in Minnesota and Wisconsin. All operations are under direction of a superintendent whose office is in Minnesota, but work in each state is directly supervised by field supervisors working within the state where the work is being performed. Each field supervisor has hiring and firing authority, but requests to add additional workers must be cleared through the central office. Employees report for work at the field offices. Time cards are sent weekly to the main office in Minnesota where the payrolls are prepared. Employees regularly perform services in both Minnesota and Wisconsin.
If coverage cannot be determined by any of the previous tests, it is necessary to apply the residence test. Residence is a factor in determining coverage only when the individual’s service is not localized in any state and the individual performs no service in the state in which the individual has a base of operations (if there is such a base), and no service is performed in the state from which service is directed and controlled.
If none of the tests apply, an individual’s service in its entirety is covered in the state in which the individual lives, provided that some of the service is performed in that state.
For instance, a salesperson employed by a Missouri company lives in Minnesota and covers territory in North Dakota, South Dakota, and Minnesota. Service is thus not localized in any state. The individual uses the employer’s Missouri office as a base for operations, and service is directed from that office. The individual thus performs no service in the state in which the base for operations is located or in the state from which service is directed and controlled. Because the individual performs service in the state of residence, all service is subject to the Minnesota UI law.
The services of some workers are excluded from coverage under the Minnesota UI law. The most important exclusion is for independent contractors.
Under the Minnesota UI law, Minnesota employers are not obligated to pay unemployment taxes for independent contractors. Independent contractors are, therefore, not eligible for benefits when their services are discontinued.
In deciding whether an individual is an independent contractor, neither issuance of a 1099 form nor language in a contract between the employer and worker characterizing the worker as an independent contractor is controlling. Rather, the primary concern is how the contract actually is performed, not what it states. There is a presumption that services performed by an individual for wages will be treated as employment subject to the payment of unemployment compensation taxes unless the employer can satisfy the test used by the Internal Revenue Service to categorize the worker as an independent contractor. Although there have been up to 20 factors identified by the courts as being part of the IRS test to determine whether a worker is an independent contractor, the following five factors carry the most weight in determining whether a worker in Minnesota is an employee or independent contractor:
For a fuller discussion of this topic, see Independent contractors.
Other excluded services include:
Employers who are not required by Minnesota law to pay UI tax on wages paid to the employer’s employees may, however, elect to extend UI coverage to those otherwise noncovered employees. This is a voluntary election of coverage by the employer, and such elections of coverage become effective the quarter after the election has been made. The elections remain in place for a minimum of two calendar years. Employers may consider this option, because the Federal Unemployment Tax Act (FUTA) liability of the employer may increase if the employer does not elect to cover otherwise noncovered wages. Payment of state unemployment insurance tax by the due date does create an offset credit toward the employer’s FUTA tax liability. Employers should contact their tax professional for more information in order to decide whether providing this elective coverage is financially advantageous to the employer.
Employers that are liable to make contributions to the Minnesota UI Trust Fund must do so by making quarterly payments based on their payroll and a percentage tax rate. This percentage is applied to taxable wages paid to employees, and the employer may not withhold this tax from employee wages.
The tax rate assigned to a particular employer depends on the employer’s experience rating. Until an employer qualifies for the assignment of an experience rating, the employer is assigned one of two “new employer” tax rates, which applies until an experience rating is later determined. Once an employer qualifies for an experience rating, its tax rate is determined by dividing the total unemployment benefits paid to the employer’s former employees by the total taxable wages paid to all the employer’s employees.
When a business starts to pay wages for the first time, it is assigned a “new employer” basic contribution rate of either:
High experience rating industries are those types of employers/industries that historically have high amounts of unemployment, such as employers engaged in the construction industry. The “new employer” tax rate is determined annually until the employer qualifies for an experience rating.
Experience rating is a procedure to allocate costs of the unemployment insurance program in relation to the employer’s actual and potential risk to the unemployment compensation trust fund. An individual experience rating account is kept for each liable employer, and all the employer’s tax payments are added and all benefit charges are subtracted from the employer’s experience rating account. This provides an opportunity for contributing employers to “earn” a tax rate based on their own individual experience and their potential risk of unemployment. The procedure also helps to insure an adequate trust fund balance. Employers with high rates of unemployment can expect higher contribution rates, while employers showing a stable employment history can expect to receive lower rates.
Employers that are liable to make contributions to the Minnesota UI Trust Fund (meaning, the employers that have employees in covered employment) are required to notify the Minnesota UI Program of any of the following changes within 30 days that any such change is made:
Employers should note that in the event of an acquisition or merger, the predecessor entity’s taxable wages and benefits paid charges are transferred to the successor as of the date of the acquisition or merger. The UI Program will recalculate the successor entity’s experience rating and resulting tax rate as of the first calendar quarter following the date of transfer.
Employers that are liable to make contributions to the Minnesota UI Trust Fund are also required to make detailed quarterly wage reports on or before the last day of the month following the end of the calendar quarter. These quarterly reports are required of every employer with an active, registered employer account, even if the employer paid no covered wages during the calendar quarter being reported.
For each quarterly wage detail report, an employer must report the following date for each covered employee:
Employers that fail to submit the required quarterly wage detail report will be assessed a late fee of $10 per employee for each day that the report is late. The amount of this late fee may not be less than $250, and the late fee also doubles if the employer is more than 30 days late in submitting the required quarterly filing. Furthermore, if the employer fails to submit the detail required for each quarterly wage report, or if the employer provides erroneous information, the employer is subject to the penalty of a $25 administrative service fee for each employee for whom the information stated by the employer is either missing or incorrect.
For purposes of completing the required quarterly wage detail report, employers must disclose in their reporting all reportable wages. The definition of “wages” that are reportable and must be included in each wage detail report include the following:
An employer’s quarterly wage detail report need not include or disclose the following, which are defined in Minnesota as being excluded from the definition of “wages:”
Because the Minnesota UI Program has the right to conduct (and does perform) regular examinations of employer records, all employer records are required to be open for inspection, audit, and verification at any reasonable time following a request for production or audit by the UI Program. The UI Program can also make follow-up requests for information and records as many times as is deemed necessary. All employer records must be retained for a minimum of eight years, and any employer who refuses to allow for a requested audit or production of its records may be assessed an administrative penalty of $500.
Specifically, the records that must be retained by an employer fall into the following categories:
Any individual who is unemployed may file a claim for UI benefits; however, both financial and nonfinancial eligibility requirements must be met before benefits can be paid.
To be financially eligible for benefits, a claimant must meet wage and credited week requirements during a base year period. Under the Minnesota UI law, a base year is one year, or four calendar quarters, but the determination of each applicant’s specific base period depends on the benefit account date and the wages the applicant was paid during the past five completed calendar quarters.
More specifically, if an applicant files in the first month of a calendar quarter (January, April, July, or October), the base period for that applicant is the first four of the most recent five completed quarters if there are enough wages in that period to establish a benefit account. If not, the base period is the most recent four completed quarters.
For an applicant filing in February, March, May, June, August, September, November, or December, the wages paid in the most recent four completed quarters are compared with the wages paid in the first four of the most recent five completed quarters. The time period with the greater amount of wages is then the determined base period.
When an employee makes an application for UI benefits, the UI Program issues a “Determination of Benefit Account” to the applicant and the employer, which determination describes the applicant’s weekly and maximum benefit amounts (wages) used to establish the account, as well as the maximum potential charges to the employer’s experience rating or reimbursing account. Employers should be certain to always review the issued “Determination of Benefit Account” to confirm the wages listed during the applicant’s base period are an accurate reflection of the applicant’s wage information. If any of the information contained within the “Determination of Benefit Account” is incorrect, the employer must make corrections on the form and return it promptly to the UI Program for correction.
There are several categories of employees who fall outside the defined scope of the UI law and are not eligible for UI benefits. These categories of employees include:
When an individual files a claim for benefits, the UI Program will send a form to the separating employer(s) asking the employer to supply information regarding the separation by a stated deadline. If an employer fails or refuses to respond to the separation inquiry in a timely manner, a determination will be based on available evidence under these circumstances, and it is likely benefits will be paid and charges assessed to the base-year employer’s reserve account.
Information supplied by the employer is used to determine if the claimant meets all of the nonfinancial requirements. Information will be reviewed and a written determination provided where an eligibility issue has been found. Benefits may be denied if an applicant:
When a UI applicant voluntarily terminates employment, the burden of proof is on the applicant to show the existence of some good cause reason(s) for quitting that is attributable to the employer. If the separation is due to alleged misconduct, the employer bears the burden to prove that an act of willful misconduct was committed by the applicant in connection with the employment.
A claimant who voluntarily quits a job may nevertheless be entitled to receive benefits if the claimant can show that there was good cause reason for leaving, attributable to the employer. The claimant bears the burden of proof in establishing good cause for quitting and that such cause was real and substantial, leaving the applicant no other alternative. The burden is on the applicant to show that, prior to quitting continuing employment, the applicant made every reasonable effort to maintain the employer/employee relationship. Following are examples of some common voluntary quit situations.
To be eligible, the applicant must inform the employer of any health limitations prior to quitting so that the employer can offer suitable work within the applicant’s limitations. The applicant must also be able and available for suggested accommodations. If the employer fails to offer suitable work, the applicant may be eligible for UI benefits.
To be eligible, the applicant must show that the applicant made reasonable efforts to obtain replacement childcare and also requested time off from the employer (or some similar accommodation) and that no accommodation was made by the employer in response to the request.
To be eligible, the applicant must show that the reason for the spouse’s relocation was beyond the spouse’s control, and that such relocation created economic circumstances that could not be overcome or that it was economically impossible to maintain two residences.
To be eligible, the applicant must show that the applicant quit due to personal circumstances that left no reasonable alternative. The applicant must show that, prior to quitting, he/she made a reasonable attempt to maintain the employer/employee relationship. The applicant must also be able and available for suitable work.
Quitting a job to attend school is not considered a cause of a compelling nature, unless it is to attend school or training provided under the Trade Readjustment Act (TRA). If the applicant quits to attend TRA training, the applicant must show that the job the applicant quit was not suitable work to be eligible for UI benefits. Suitable work for the purposes of this exception means work of a substantially equal or higher skill level than the claimant’s past “adversely affected employment,” and wages for such work are not less than 80% of the worker’s “average weekly wage.”
Initially accepting a particular job is an admission of the suitability of that position with respect to its wages and the conditions of employment. When an applicant quits because the job was unsuitable, the applicant must show there were changes in the conditions of employment with which the applicant did not agree that made the job unsuitable, or that there was deception on the part of the employer with regard to the conditions of employment at the time of hire. Suitability of the work will be determined by considering factors such as the degree of risk involved to the following:
A reasonable change in work hours or shift, changes in commission structures that do not result in a substantial reduction in pay, demotion after prior warning, or disagreements involving issues related to policy or personality are generally not considered either unsuitable work or good cause attributable to the employer.
To be eligible, the applicant must show that the monetary expectations of employment were not fulfilled through no fault of the applicant. For example, an applicant takes a job selling vacuum cleaners because the employer says that the employee could make $50,000 per year through commission sales. After three weeks, the applicant quits the job because the applicant was unable to make any sales and the personal expenses exceeded the income, thereby warranting the allowance of UI benefits.
An applicant will not be disqualified for benefits by exercising the option of accepting a temporary layoff from an available position under a labor-management contract agreement, or under an established employer plan, program, or policy.
Someone who is discharged from employment for reasons that are considered to be misconduct or aggravated misconduct is not eligible to receive UI benefits. The employer must show that the employee’s actions rose to the level of willful misconduct.
“Misconduct” is considered any intentional, negligent, or indifferent conduct, on or off the job, that either:
Generally, misconduct falls into one of the following categories:
Because each situation presents its own unique set of facts for evaluation in determining whether or not misconduct occurred, Minnesota’s courts have provided guidance in determining an individual’s eligibility in specific situations involving a discharge for misconduct. The following are examples of some common discharge situations that may constitute misconduct to deny UI benefits:
Minnesota law defines “aggravated misconduct” in the context of UI benefits as assault and battery, malicious destruction of property, arson, sabotage, embezzlement, financial exploitation, or any other act that amounts to a felony or gross misdemeanor under criminal laws if the act interfered with or adversely affected the employment.
An employee who commits aggravated misconduct not only is disqualified from UI benefits, but will also lose any wage credits attributable to the employer.
An applicant for UI benefits becomes ineligible for compensation for any week in which unemployment is due to failure, without good cause, either to register for suitable work or to accept suitable work when offered by an employer, provided that the employer notifies the UI Program of the offer to the potential employee. As a practical matter, very few claimants are denied benefits based upon refusing to accept suitable work because subsequent employers have no incentive to report offers of employment to the Program.
In addition, benefits cannot be denied if an application is not required to accept the offer under the terms of a labor-management contract or agreement, or under an established employer plan, program, or policy. An applicant may also refuse suitable work if the individual is an adversely-affected worker who is unemployed due to import competition and is in training approved under the provisions of the Trade Act.
Under the Minnesota UI Program, an eligible claimant’s weekly UI benefit amount is approximately 50% of the person’s average weekly wage, up to a maximum of $740 per week. A separate “Determination of Benefit Account” is mailed to each UI claimant, detailing the calculated amount of the weekly UI benefit available for that claimant. That determination of amount is entirely separate from the determination regarding eligibility for benefits, which was discussed previously.
To encourage unemployed individuals to accept new employment, the Minnesota UI Program permits them to still earn UI benefits while employed in a new job. As long as an eligible claimant works no more than 32 hours per week and does not receive gross earnings equal to or greater than the claimant’s weekly UI benefit amount, the claimant can still receive a partial UI benefit payment of up to 50% of what would otherwise be available to the claimant for a weekly benefit.
A claimant who is receiving Social Security based on the claimant’s own employment will have 50% of the prorated, weekly Social Security amount deducted from UI benefits. Other pension and retirement payments are deducted from UI benefits on a dollar-for-dollar basis.
A claimant who is otherwise eligible for UI benefits will not be eligible for those benefits during the period of time covered by any severance payment received from the employer. For example, if a severance payment is equivalent to five weeks of the claimant’s regular pay, the claimant will not be eligible for UI benefits for a five-week period.
Fifty percent of any holiday pay received by a UI claimant is deducted from the amount of the claimant’s weekly UI during the week of the holiday in which pay is received.
One hundred percent of any vacation, sick, or personal time off pay received by a UI claimant is deducted from the amount of the claimant’s weekly UI benefit unless the claimant is permanently separated from the employer, in which case such pay does not affect the claimant’s UI benefits.
One hundred percent of any back pay received by a UI claimant is deductible from weekly UI benefits if the back pay is for a period of time the claimant received UI benefits.
There are certain types of income that do not reduce UI benefit payments, including:
An individual may file a claim for benefits:
Or online at:
If the claimant or the employer disagree with the initial determination regarding eligibility or amount of benefit, as determined by the Unemployment Insurance Program, either party may appeal the initial determination and request a hearing before a UI Law Judge. Each benefit determination issued by the UI Program will provide specific instructions to both the claimant and the employer as to how an appeal can be made, and those instructions will contain the deadline by which any appeal must be filed.
As of April 1, 2010, Minnesota statutes require that all appeals filed by agents on behalf of an employer must be filed online. Use of another filing method, such as mail, does not constitute a proper appeal.
Once an appeal is timely filed, a Notice of Hearing will be issued and will provide the details regarding date, time, and location for a hearing before the UI Law Judge assigned to the appeal. Hearings under the Minnesota UI system are held by telephone unless the specific circumstances of a case make it impractical to conduct the hearing in this manner.
During the hearing, the UI Law Judge will take sworn testimony from both the claimant and employer and will further ensure that each party has the chance to speak, ask questions, and submit evidence relevant to the case. The employer and the claimant have rights at a hearing including:
Neither party is required to have a lawyer, and non-lawyer advocates can represent the interests of corporations. Indigent claimants may qualify for free legal assistance from a legal services organization or a local bar association.
Once the hearing is completed, the UI Law Judge will issue a written decision based upon the testimony and evidence obtained during the hearing.
Once a UI Law Judge issues a decision, any party who disagrees with the decision may file a request that the UI Law Judge reconsider the decision. Requests for reconsideration must be filed within 20 days of the date the initial decision is mailed, and the same UI Law Judge who issued the decision then reviews and responds to the request for reconsideration.
Any reconsidered decision issued by UI Law Judge may be further appealed to the Minnesota Court of Appeals. No appeal may be made from an initial determination; a party disagreeing with the initial decision must go through the process to request reconsideration by the UI Law Judge before filing an appeal to the Minnesota Court of Appeals. Instructions and forms to complete the appeal to the Minnesota Court of
Appeals are available at:
Appeals to the Minnesota Court of Appeals of a reconsidered decision must be made within 30 days of the date the decision on reconsideration is mailed to the involved parties.
Because an employer’s experience rating and corresponding tax rate is increased whenever a former employee receives benefits, it is to the employer’s advantage to contest claims that are without merit. In addition to contesting unsupported unemployment insurance claims, employers may take the following steps to control unemployment insurance costs, including:
Handbooks for both claimants and employers are available on the Internet. The claimant handbook issued by the Minnesota UI Program is available at:
In addition, the employer handbook issued by the Minnesota UI Program is available at:
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