Minnesota: New Independent Contractor Test for Construction Employees
APPLIES TO All Employers with MN Independent Contractors and Employees |
EFFECTIVE July 1, 2024 |
QUESTIONS? Contact HR On-Call |
Quick Look
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Discussion
HF 5247 increases penalties for employers who misclassify employees as independent contractors. Owners, partners, principals, members, officers, and agents can face individual liability for knowingly or repeatedly engaging in employee misclassification. The penalty can be up to $10,000 for each misclassified individual with each violation counted separately.
In addition, the bill provides a new test as to whether a construction worker is an independent contractor. The requirements are extensive. A construction worker is an independent contractor only if they are operating as a business entity that meets all of the following requirements:
- was established and maintained separately from and independently of the person for whom the services were provided or performed;
- owns, rents, or leases equipment, tools, vehicles, materials, supplies, office space, or other facilities that are used by the business entity to provide or perform building construction or improvement services;
- provides or performs, or offers to provide or perform, the same or similar building construction or improvement services for multiple persons or the general public;
- is in compliance with all of the following:
- holds a federal employer identification number if required by federal law;
- holds a Minnesota tax identification number if required by Minnesota law;
- has received and retained 1099 forms for income received for building construction or improvement services provided or performed, if required by Minnesota or federal law;
- has filed business or self-employment income tax returns, including estimated tax filings, with the federal Internal Revenue Service and the Department of Revenue, as the business entity or as a self-employed individual reporting income earned, for providing or performing building construction or improvement services, if any, in the previous 12 months; and
- has completed and provided a W-9 federal income tax form to the person for whom the services were provided or performed if required by federal law;
- is in good standing as defined by section 5.26, if applicable;
- has a Minnesota unemployment insurance account, if required;
- has obtained required workers’ compensation insurance coverage, if required;
- holds current business licenses, registrations, and certifications, if required;
- is operating under a written contract to provide or perform the specific services for the person that:
- is signed and dated by both an authorized representative of the business entity and of the person for whom the services are being provided or performed;
- is fully executed no later than 30 days after the date work commences;
- identifies the specific services to be provided or performed under the contract;
- provides for compensation from the person for the services provided or performed under the contract on a commission or per-job or competitive bid basis and not on any other basis;
- submits invoices and receives payments for completion of the specific services provided or performed under the written proposal, contract, or change order in the name of the business entity. Payments made in cash do not meet this requirement;
- the terms of the written proposal, contract, or change order provide the business entity control over the means of providing or performing the specific services, and the business entity in fact controls the provision or performance of the specific services;
- incurs the main expenses and costs related to providing or performing the specific services under the written proposal, contract, or change order;
- is responsible for the completion of the specific services to be provided or performed under the written proposal, contract, or change order and is responsible, as provided under the written proposal, contract, or change order, for failure to complete the specific services; and
- may realize additional profit or suffer a loss, if costs and expenses to provide or perform the specific services under the written proposal, contract, or change order are less than or greater than the compensation provided under the written proposal, contract, or change order.
If the above requirements are not met, the construction worker will be found to be an employee. Employers in the construction sector should review and update their agreements for compliance.
Action Items
- Review the bill here.
- Review independent contractor classifications with legal counsel.
- Review independent contractor onboarding procedures.
- Have appropriate personnel trained on the requirements.
Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2024 ManagEase