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 constitute 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.
Common law factors
Minnesota state agencies use a common law factor analysis similar to the Internal Revenue Service to determine the status of a worker. 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:
||Essential Characteristics of Employment
||Essential Characteristics of Independence
Does the firm or does the worker control the means and manner in which the services are performed?
|The firm has the right to control the means and manner in which the services are performed. The firm can require the worker to work at specific times and may also specify the methodology used to complete the work.
||The firm's only concern is the end result of the workers efforts. The worker requires no training and can generally hire a substitute to complete the job without the firm's approval as long as the work is completed as specified in the agreement.
Can either party sue for breach of contract or can the firm or worker terminate the relationship at will without incurring any legal liability?
|The firm has the right to discharge the worker without incurring any legal liability for not allowing the worker to complete the job.
||The firm and worker are in a binding contract, where failure to complete services is a breach of contract in which a legal remedy may be pursued by either party.
Does the firm or the worker dictate the value placed on the services provided? Is the worker paid by the job or in a regular and routine manner?
|The worker is paid in a regular and routine manner for services performed, generally based on the amount of time spent on the job by the worker (the worker is paid hourly, weekly, monthly, etc.) .
||The worker is paid by the job, on a bid basis, by percentage completion, etc., and has both the ability to make a profit, and to sustain a loss.
Does the firm or the worker furnish any car or truck, tools or equipment, and/or materials or supplies necessary to perform these services?
The firm furnishes the worker with:
- Company car or truck,
- Tools or equipment, or
- Materials or supplies.
The worker furnishes all tools, equipment, materials, and supplies necessary to complete the work.
The worker has substantial investment in the tools and equipment used to perform the services and has expenses that are not directly reimbursed by the firm.
Does the firm or does the worker control the premises where these services are performed?
|The firm controls the premises where services are performed.
||The worker makes his or her services available to the public on a continuing basis and generally has their own place of business.
Unique treatment of independent contractors in the construction industry
Reference: Minnesota Department of Labor & Industry Law, §181.723
Legislation passed in 2012 requires that, effective September 15, 2012, 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). This new law replaces the independent contractor exemption certificate (ICEC) program with a simplified two-year pilot project for registration of construction contractors. Current holders of non-expired ICECs do not need to register until their ICEC expires. Refer to the Department of Labor and Industry's website for details.
In addition to registration, one of the main requirements of the DLI law is that any worker doing commercial or residential building construction or improvement in Minnesota, in the public or private sector, performing services in the course of the trade, business, profession, or occupation of the employer, is considered an employee and not an independent contractor unless the worker meets all of the following conditions:
- Maintains a separate business with the independent contractor's own office, equipment, materials, and other facilities
- Holds or has applied for a federal employer identification number or has filed business or self-employment income tax returns with the federal Internal Revenue Service based on that work or service in the previous year
- Operates under contracts to perform specific services or work for specific amounts of money under which the independent contractor controls the means of performing the services or work
- Incurs the main expenses related to the service or work that the independent contractor performs under contract
- Is responsible for the satisfactory completion of work or services that the independent contractor contracts to perform and is liable for a failure to complete the work or service
- Receives compensation for work or service performed under a contract on a commission or per job or competitive bid basis and not on any other basis
- May realize a profit or suffer a loss under contracts to perform work or service
- Has continuing or recurring business liabilities or obligations
- The success or failure of the independent contractor's business depends on the relationship of business receipts to expenditures
For additional information about independent contractors, contact:
MN Unemployment Insurance Program
651-296-6141 | www.uimn.org
Internal Revenue Service
1-800-829-1040 | www.irs.gov
MN Department of Labor & Industry
651-284-5005 | www.dli.mn.gov
MN Department of Revenue
651-282-9999 | www.revenue.state.mn.us/businesses