Independent contractors

Reference: Minnesota Law, §3315.0555 and §268.035 Subd. 25b

Proper classification of workers can be a complex task for any business. The Minnesota Unemployment Insurance (UI) Program reserves the right to determine whether services performed by a worker make up employment.

Independent contractors are common in certain industries, construction being the most familiar example. However, it is not unusual to find full time clerical workers, janitors, managers, and nurses, as well as employees who are performing services on a part time, temporary or probationary basis in a variety of job classifications being misclassified as independent contractors. The following table summarizes the key elements involved in determining whether a worker is an employee or an independent contractor.

Under Minnesota law, it is illegal for employers to misclassify workers who are employees as independent contractors.

Employers who misclassify workers as independent contractors can face penalties and may owe affected workers back wages and other compensatory damages, whether the misclassification was intentional or not.

Common law factors

Minnesota state agencies determine the status of a worker using a common law factor analysis similar to the Internal Revenue Service’s Common-Law Rules, Publication 15-A. Minnesota's common law factors have been defined by the Minnesota court system. Of the twenty factors defined by the courts, the five factors that carry the most weight are shown in this table:

Unique treatment of independent contractors in the construction industry

Reference: Minnesota Statutes, §181.723 Subd. 4 - Minnesota Department of Labor & Industry Law

Certain individuals who wish to work as independent contractors in the construction industry in Minnesota must register with the Minnesota Department of Labor and Industry (DLI). Refer to the Department of Labor and Industry's website for details.

Effective March 1, 2025, changes were made to include specific language about misclassifying workers in the construction industry. Changes apply to providing commercial or residential building construction or improvement services. In the commercial or residential building construction industry, workers are considered employees unless they meet the 14 legal requirements to be considered independent contractors:

1. Was established and maintained separately from and independently of the person for whom the services were provided or performed. 
2. 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. 
3. 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. 
4. Is in compliance with all of the following: 
   1. Holds a federal employer identification number if required by federal law. 
   2. Holds a Minnesota tax identification number if required by Minnesota law. 
   3. 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. 
   4. 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.
   5. 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. 
5. Is in good standing as defined by section 5.26, if applicable. 
6. Has a Minnesota unemployment insurance account if required by chapter 268. 
7. Has obtained required workers' compensation insurance coverage if required by chapter 176. 
8. Holds current business licenses, registrations, and certifications if required by chapter 326B and sections 327.31 to 327.36. 
9. Is operating under a written contract to provide or perform the specific services for the person that:
   1. 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. 
   2. Is fully executed no later than 30 days after the date work commences. 
   3. Identifies the specific services to be provided or performed under the contract. 
   4. 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. 
   5. The requirements of item (ii) shall not apply to change orders.
10. 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. 
11. 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. 
12. Incurs the main expenses and costs related to providing or performing the specific services under the written proposal, contract, or change order. 
13. 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. 
14. 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.

Unique treatment of independent contractors in the trucking and messenger/courier industries

Reference: Minnesota Law, §268.035 Subd. 25b

In the trucking and messenger/courier industries, an operator of a car, van, truck, tractor, or truck-tractor that is licensed and registered by a governmental motor vehicle agency is an employee unless each of the following factors is present, and if each factor is present, the operator is an independent contractor:

1. The individual owns the equipment or holds it under a lease arrangement. 
2. The individual is responsible for the maintenance of the equipment. 
3. The individual is responsible for the operating costs, including fuel, repairs, supplies, vehicle insurance, and personal expenses. The individual may be paid the carrier's fuel surcharge and incidental costs, including, but not limited to, tolls, permits, and lumper fees. 
4. The individual is responsible for supplying the necessary personal services to operate the equipment. 
5. The individual's compensation is based on factors related to the work performed, such as a percentage of any schedule of rates, and not on the basis of the hours or time expended. 
6. The individual enters into a written contract that specifies the relationship to be that of an independent contractor and not that of an employee. 
7. The individual substantially controls the means and manner of performing the services, in conformance with regulatory requirements and specifications of the shipper.

Under Minnesota law, it is illegal for employers to misclassify workers who are employees as independent contractors. Employers cannot ask workers to complete documents that would misclassify or misrepresent them as an independent contractor; they also cannot require a worker who is an employee to register as a contractor. Minnesota has a specific law about misclassification of workers.

Federal and state resources

For additional information about independent contractors, contact: