Minnesota is a large state, ranking 12th in land area in the US. However, its population density is relatively low outside of the Twin Cities area, and it ranks 22nd in the country with 5.793 million people calling it home. This state punches above its weight, producing the 20th-largest state GDP of $500.851 billion. Compared with whole nations, this GDP would rank 32nd in the world, between the countries of Norway and the Philippines. This major economy is an important market in the US and attracts investors from around the world.

As of August 2025, Minnesota has a labor force of more than 3.156 million workers. The state’s unemployment rate has increased gradually through 2025, but is still a moderately low 3.6%. That represents around 113,600 workers currently seeking employment. Employment has actually increased by 1.4% year on year. While employment is up in construction, education, and health services, it has also decreased in information, finance, and other services in the past year.

Agriculture is important in the state and employs around 11% of its labor force. This is matched by around 11% in manufacturing, and much more in energy, mining, construction, and other parts of the industrial sector. The service sector is also significant, with healthcare, social, professional, financial, government, and retail services employing a majority of workers in the state.

Doing business in Minnesota can be a rewarding proposition, but hiring local employees can be a challenge. To help you succeed, partnering with a Minnesota PEO can decrease your costs while producing high-quality HR services for your employees.

What Are PEOs in Minnesota?

A Minnesota PEO or Professional Employment Organization is a type of service provider that helps you manage HR for your workers through a ‘co-employer’ relationship. You can outsource most of your HR functions to a PEO partner that will manage administration for you and help to keep you compliant with all of the state tax and employment laws in Minnesota. For most small and medium businesses, PEOs can manage HR more cost-effectively than they can themselves. PEOs work with multiple clients to provide services at scale, and can also keep their costs down by automating many processes. 

Modern PEOs provide their services through online, cloud-based platforms that are accessible from anywhere. They can very efficiently provide core HR services like payroll processing, benefits administration, and leave management. Many PEOs also take things further than core services by offering accessory tools and functions like employee engagement, performance management, and talent management. These platforms allow employees to access their information and make requests, helping to reduce administrative burden even more. While these systems are largely automated, they’re set up and overseen by teams of professionals who are experts in law, HR, and taxes in Minnesota. These professionals monitor legal and procedural changes and adapt the PEO’s services accordingly. 

You may have heard of another type of provider that offers similar services. A Minnesota EOR, or Employer of Record, can also manage HR and compliance for your employees in the state. However, the major difference between PEOs and EORs is in hiring. While a PEO acts as a co-employer, an EOR will directly hire employees for you if you don’t own a registered business entity. Otherwise, their services are very similar, and many people use the terms PEO and EOR synonymously.

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Why Hire through a PEO in Minnesota?

While growth has slowed in Minnesota over the past year, the labor market is still expanding at least slightly. Minnesota assesses a relatively high CIT (corporate income tax rate) of 9.8% of a company’s earnings, but this doesn’t seem to have discouraged investors. The state still offers extensive infrastructure, a high quality of life, and a skilled and well-educated workforce. Adults aged 25-44 in the state have a very high post-secondary education attainment rate of 63%, and a target of 70% has been set for the end of 2025. 

If you’re not experienced working in the state or familiar with Minnesota’s employment and tax laws, however, it can be very hard to manage HR for your workers. This is why so many employers choose to partner with PEOs that have expert knowledge of these factors. Some of the regulations you’ll need to be aware of in Minnesota include:

  • Regular hours: Minnesota law allows employees to work up to 48 regular hours a week. However, most employees are subject to the federal Fair Labor Standards Act (FLSA), which limits weekly hours to 40 hours for most employees. The state doesn’t define full-time and part-time work, letting employers decide these categories and schedules for themselves.
  • Overtime: Most employees must be paid at least 150% of their normal wages for overtime work. However, many administrators, executives, and professionals are exempt from this requirement.
  • Annual Leave: Employers in Minnesota aren’t required to provide paid annual leave. Many still do so of their own volition to keep their compensation packages competitive. 
  • Minimum Wage: The minimum wage in Minnesota is higher than the federal minimum wage of $7.25 per hour. It’s currently $11.13/hour but will increase to $11.41/hour in January 2026.
  • Parental leave: Instead of receiving maternity and paternity leave, Minnesota employees are generally subject to the federal Family and Medical Leave Act (FMLA). This act requires employers to provide 12 months of unpaid family leave if they have 50 or more employees, and Minnesota’s own Paid Family and Medical Leave Act (PFML) will increase entitlements in January 2026.
  • Sick and safe leave: The Minnesota Sick and Safe Time program entitles working Minnesotans to up to 48 hours of paid leave per year. This leave is accumulated at the rate of one hour for every 30 hours worked.

PEOs can help employers to stay compliant with these and other complex regulations. They reduce their clients’ administrative burden and their risk of non-compliance. They can also help them provide professional, enterprise-quality HR services for less than they would normally spend if they managed HR in-house.

Which Services Do PEOs Provide in Minnesota?

The dozens of PEOs that operate in Minnesota can offer a wide range of services and prices. However, most will focus on the following core services:

Payroll Management

Without expert knowledge of the tax and employment rules in Minnesota or any state, it can be almost prohibitively difficult to manage payroll. Because they possess this expertise, PEOs manage payroll as one of their most important core services. Their automated platforms manage the difficult schedules and calculations required while maintaining a high level of accuracy and compliance.

New hires are added to your payroll, and each has an automatic calculation set up, based on their wages, deductions, and tax obligations. As the worksite employer, you’ll need to provide the PEO with the time and attendance data you collect, either through its platform or your own tools. It will then run payroll for each pay period, calculating each employee’s net salary and paying it to them on your behalf.

Employee Benefits Administration

Employees and their employers in Minnesota need to contribute to the federal Social Security scheme. Employees also make contributions from their wages to Medicare. Employers are responsible for paying workers’ compensation and unemployment insurance for their employees. These mandatory benefits are administered by PEOs as part of their core services. Contribution rates are shown below as fractions of each employee’s salary:

BenefitEmployee ContributionEmployer Contribution
Workers’ Compensation Insurancen/a1.3% (on average)
Minnesota Unemployment Insurancen/a1.1–8.9% up to a wage base limit of $26,100
Social Security6.2% up to a wage base limit of $176,1006.2% up to a wage base limit of $176,100
Medicare1.45% (+0.9% on income over $200,000)n/a

You can also work with a PEO partner to provide supplemental benefits for your employees, like health insurance, retirement savings plans, and equity. Most PEOs can either connect you to plan providers or offer you their own plans. They’ll also administer these plans for you for an extra fee.

These additional benefits can help you both attract and retain employees as part of attractive compensation packages.

Tax Compliance

PEOs must be registered in Minnesota and must renew their registration annually, while also filing quarterly and annual reports. This registration is required because PEOs typically manage employee taxes for their clients. As a part of payroll processing, they calculate each employee’s tax obligations, withhold these amounts from their paychecks, and remit them to the tax authorities regularly.

The PEO will calculate the employee’s income and withhold between 5.35% to 9.58% to be paid to the Minnesota Department of Revenue. It will also calculate their federal income taxes to be withheld and remitted to the IRS. These taxes are calculated at between 10% and 37% of their income, depending on their earnings and filing status.

Recruitment and Employment Contracts

While some clients come to PEOs with employees already engaged or candidates already identified, others need help with recruitment. Some, but not all, PEOs can help with this unique function, while others choose not to provide such a specialized service. A small number of PEOs employ recruiters who actively search for talent for their clients to engage. Others only provide tools that help clients recruit more effectively on their own, like applicant tracking systems (ATSs) and talent pools. 

Once candidates have been selected, either with the help of a PEO partner or not, many PEOs continue to support their clients in their hiring efforts. Because they have expertise in the local employment market, PEOs can suggest appropriate and attractive levels of compensation to offer your candidates. They may also help you negotiate salaries, benefits, and working conditions with them, and also manage candidates’ commitments. PEOs are also perfectly positioned to create employee contracts because of their extensive knowledge of employment laws in Minnesota. 

Employment contracts in the state are normally written, but they can be verbal as long as they don’t last longer than one year. Still, written contracts are less risky and are, therefore, preferred. They must include details of job title, duties, pay period and method, compensation, working hours, benefits, and any termination conditions. Intellectual property and non-disclosure clauses can also be added if desired.

Onboarding

As the worksite employer, you’ll need to onboard new hires. From your side, this normally entails giving them orientations, position-specific training, and access to the tools and data they’ll need to perform their work. However, your PEO partner also has important onboarding responsibilities to take care of. These include collecting important personal and banking information from the employees and using this to set up their profiles and automatic calculations in your payroll. They’ll also register them with Social Security and the state and federal tax authorities, and set up bank transfers for their salary payments.

Terminations

As Minnesota is an ‘at-will’ employment state, employers and employees can terminate their agreements at any time. Employers aren’t required to prove just cause to dismiss workers, nor do they need to provide notice or severance pay. Employees also don’t have to give notice, though it’s customary for both sides to provide at least two weeks’ notice as a best practice. PEOS can help to manage notice periods and severance payments if they are added to individual contracts, however.

Advantages of Using a PEO in Minnesota

Partnering with a PEO in Minnesota can make recruiting, hiring, and managing HR for employees a lot easier than doing it on your own. The benefits of this kind of partnership include:

Cost Savings

One of the primary reasons why so many SMBs choose to hire employees through PEOs is the ability to offer professional HR services for a lower cost than doing so internally. 

Risk Mitigation

PEOs’ expert staff monitor legal changes in the state and adapt their systems to them to keep you compliant with Minnesota’s employment and tax regulations at all times. 

Recruitment

Some PEOs can actively recruit talent for you, while others provide useful tools to help you recruit on your own more effectively and affordably. 

Fast Time to Hire

PEO recruiters can typically find you talent much more quickly than you could on your own. They can usually also onboard employees in a single day, helping them start working for you legally as quickly as possible.

How to Engage a Minnesota PEO

If you’re interested in partnering with a Minnesota PEO to help you provide HR services effectively, you can engage one by following these easy steps:

1

Select a Provider

Assess your options based on reputation, experience, price, and service provision. Choose the provider you think will match your needs best.

2

Request a Consultation

Contact your selected provider and ask them to give you a consultation in which they’ll outline the services they can provide for you and their fees.

3

Enter into a Service Agreement

Once you’ve agreed on the terms, you can sign a service agreement to begin working together. The PEO will immediately start recruiting for you or onboarding your existing employees.

Want to dive deeper? Check out our full guide: PEO vs. EOR: What’s the Difference?

Minnesota PEO Services

Minnesota offers strong opportunities for business expansion, but managing employees in the state can be challenging without a solid understanding of local employment and tax regulations. Partnering with a PEO helps businesses stay compliant, control costs, and deliver professional HR support without taking on unnecessary administrative strain.

Remote People provides PEO services tailored to Minnesota employers, covering payroll, benefits administration, compliance, and day-to-day HR management. Our approach helps you simplify workforce operations while supporting your team as your business grows. Contact Remote People to learn how our Minnesota PEO services can help you operate with confidence and clarity.