Effective July 1st, all employers, as well as their owners, risk significantly increased penalties for misclassifying employees as independent contractors.
Significantly Higher Penalties Available in General Industry: Effective July 1, 2024, employers may face penalties of up to $10,000 for each individual violation. If the employer also failed to report the individuals as employees to a state agency, such as to the unemployment insurance division, it could face additional penalties. Individual owners, officers, or agents who knowingly or repeatedly engage in any of the prohibited activities may also be held liable.
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All Industries Except Construction – July 1st 2024 Employment Law Updates
Classification Tests: For all industries except construction, Minnesota’s Department of Labor and Industry (DOLI) uses the state’s Workers Compensation or Unemployment Compensation test to determine if a worker is an independent contractor or employee. These tests focus on five factors: (1) the right to control the means and manner of performance; (2) the mode of payment; (3) the furnishing of tools and materials; (4) control over the premises where the work was done; and (5) the right of discharge. For industry specific situations, DOLI also refers to 34 different tests based upon the industry in which the individual works. For additional information regarding occupational specific safe harbor rules see: 5224 – MN Rules Chapter.
What To Do:
Companies Operating in Minnesota will need to review and carefully examine independent contractors to verify they are properly classified. Please use the Link Provided above. On the website click on the part number that is next to the industry you want to review in depth. Review each contractor situation to insure you are in compliance with the new changes.
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Construction Industry – March 1st 2025 Employment Law Updates
Effective March 1st , 2025, all employers, as well as their owners, risk significantly increased penalties for misclassifying employees as independent contractors. Construction industry employers, however, should be especially vigilant in ensuring their independent contractors are properly classified.
New Classification Test: Effective March 1st , 2025, determining whether a construction industry worker is an employee versus independent contractor will be based upon a new 14-factor test that focuses on the time at which the services were provided. Please see our website for additional information on the Contractor Test.
General Contractor Liability: Under the new law, general contractors also face increased liability for misclassifying workers. For instance, if a subcontractor fails to meet each of the 14 factors at the time the services were provided, all its employees will be considered employees of the business entity with whom it contracted. Additionally, if that business entity also fails to meet the 14-factor test and contracts directly with the general contractor, the general contractor will be liable for all misclassifications.
Stop Orders: As of March 1st , 2025, DOLI will have significantly enhanced enforcement powers, including the issuance of stop orders in the construction industry. With a stop order, DOLI may order a business to cease operating at one or more of its workplaces if DOLI determines the business violated one or more laws, including those related to misclassification. The stop order will remain in existence until the Commissioner lifts it upon finding the business has come into compliance with applicable law and paid any damages and penalties.
What To Do:
Companies Operating in Minnesota will need to review and carefully examine independent contractors to verify they are properly classified. With the new 14-factor test focused on the time at which the services were provided, construction contractors will want to be extra vigilant to ensure that their subcontractors’ registrations and licenses remain valid through the entire time when they are performing work for the contractor. Inadvertent lapses in registrations/licensure could lead to significant misclassification liabilities.