Effective July 1, significant changes are being made to Minnesota’s independent contractor and employment laws. All employers, as well as their owners, are subject to increased penalties for misclassification of employees as independent contractors. In addition, these new changes will significantly impact construction contractors.
For all industries except construction, Minnesota will continue to use the five-factor test to determine classification. However, employers will now face penalties of up to $10,000 per individual violation.
Additional penalties may be imposed if the employer fails to report the workers as employees to a state agency. Finally, individual owners and officers can be held personally liable for intentional or continued violations.
For the construction industry, a new 14-factor test has replaced the existing 9-factor test. There are now more specific rules regarding the independent contractor’s business registration, tax reporting, and contract language. New penalties can also be imposed by the state.
Finally, general contractors may be considered the employer of a subcontractor’s employees if that subcontractor fails to meet the 14-factor test. The Minnesota Department of Labor and Industry (MN DOLI) will also have the authority to issue stop orders if it determines that misclassification has occurred.
As of this writing, MN DOLI has not updated its website to reflect the new law. Watch https://www.dli.mn.gov/business/workers-compensation/work-comp-independent-contractor-or-employee (for all industries) and https://www.dli.mn.gov/business/employment-practices/worker-misclassification (for the construction industry) for updates.
If you have further questions about the new independent contractor laws in Minnesota, you can contact an advisor here.