Minnesota Independent Contractor Law Penalties: What Business Owners Need to Know

Minnesota Independent Contractor Law Penalties: What Business Owners Need to Know

Mistakes in worker classification can cost Minnesota businesses thousands. Recent updates to the state’s independent contractor and employment laws have strengthened enforcement and increased penalties. 

All employers, as well as their owners, are subject to increased penalties for misclassification of employees as independent contractors. Construction contractors face particularly strict requirements.

For Non-Construction Employers

For all industries except construction, Minnesota uses a five-factor test to determine classification. Employers 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. Individual owners and officers can be held personally liable for intentional or continued violations. 

For The Construction Industry

Rules are stricter for the construction industry, which now uses a 14-factor test. The test includes specific rules regarding the independent contractor’s business registration, tax reporting and contract language. Penalties can be imposed by the state.

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) has the authority to issue stop orders if it determines that misclassification has occurred.

Why Construction Faces Stricter Standards

The construction industry's history of wage theft, uninsured workers and tax avoidance prompted Minnesota to implement these enhanced requirements. 

With injury rates three times higher than other industries, misclassified construction workers often lack workers' compensation coverage, leaving them financially vulnerable and shifting costs to taxpayers.

Resources for Ongoing Compliance

For current information, consult these resources: 

• MN DOLI Worker Classification (All Industries) 

• MN DOLI Construction Industry Guidelines 

• Misclassification FAQS MN: Department of Labor & Industry

• IRS Independent Contractor Guidelines
• Minnesota Department of Revenue Business Tax Information

Protect your business from costly misclassification penalties. A trusted advisory team can help you navigate Minnesota's contractor requirements.