What happened?

Effective July 1, 2024, all employers face higher penalties for wrongly classifying employees as contractors. Particularly, construction firms should be extra careful to correctly classify their contractors, with a deadline set for March 1, 2025.

What are the details?

Key Bites for Employers:

• General Sector:
  • Minnesota will continue to use the 5-factor test to determine classification.
  • Employers will now face penalties of up to $10,000 per individual violation (Effective July 1, 2024). 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.
• Construction Sector:
  • A new 14-factor test has replaced the existing 9-factor test.
  • General contractors may be considered the employers of a subcontractor’s employees if that subcontractor fails to meet the 14-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 (Effective July 1, 2024).
  • Entities can be ineligible to be awarded a public construction contract if they fail to meet the new conditions.
  • 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

For a breakdown of the engrossed bill: Link.

Business Considerations

• Employers operating in Minnesota should carefully evaluate whether the independent contractors with whom they conduct business are properly classified under state law
• Employers in the construction sector should, by March 1, 2025, reassess their business practices and contracts to ensure subcontractors comply with the new 14-factor test. They should also maintain strict oversight to ensure subcontractors’ licenses and registrations are valid throughout the work duration
• Employers should correctly classify and represent employees, report them to relevant agencies as required, and avoid agreements that misclassify employees as independent contractors
• Employers should carefully evaluate whether the independent contractors with whom they conduct business are properly classified under state law and their subcontractors.

Source References

• MN HF 5247

Resources

• MN WORKER MISCLASSIFICATION

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