MINNESOTA: New Employee Classification Legislation

There has been an ongoing movement to focus on the classification between employees and independent contractors both at the federal and state levels in recent years.  Most recently, the federal government revised its worker classification guidelines in an effort to clarify the rules, but also to be more stringent on worker classification.  While the language of the rule changed substantially, the practical effect of how the rule operates appears minimal as both the old and the new test focus primarily on the worker is economically independent and has autonomy of their performance of the work.

The Minnesota House of Representatives is currently considering a similar bill.  While the proposed changes are predominantly focused on construction companies, the changes would affect most industries utilizing independent contractors.  Specific to construction workers, the bill would revise the current 9-point independent contractor test to a 14-point test.  The new test would add additional requirements (see lines 9.26-11.26 of the bill) like requiring the independent contractors to operate a legal entity, to serve multiple parties with their businesses, have unemployment insurance (if applicable), workers compensation coverage (if applicable), operating under a written contract with their customer, and a requirement to submit invoices to their customer for their services.  These items have long been factors Minnesota regulators considered when performing a worker classification audit, but if passed, these will now be required by law.

In addition to more stringent guidelines, the proposed bill would also introduce fines on top of the standard tax and interest penalties that may accompany a worker classification audit.  In short, the new bill would increase the threshold requirements to be classified as an independent contractor and increase penalties to the business that hired the independent contractor for failure to comply.  If your company utilizes independent contractors – whether or not this bill passes – you should revisit your independent contractor agreements and practices to make sure you’re compliant and avoid costly penalties and fees.

If you have any questions, reach out to SJJ Law for a free consultation.