The Minnesota Department of Labor and Industry sharply regulates the residential construction industry in Minnesota and has published its 2014 Worker Misclassification stats from January through August. The Registration Enforcement Orders, which include 24 separate licenses revoked or suspended and civil penalties totaling $119,950 can be found here. Worker Misclassification refers to whether someone you hire is an employee or an independent contractor. While most times contractors and subcontractors prefer to consider the sub an independent contractor it is not as simple as just calling the subcontractor an independent contractor. The State of Minnesota has a 9-factor test that is laid out in Minnesota Statutes section 181.723. If you define your subcontractors as independent contractors and they do not meet all 9 factors under 181.723, you could be facing license violations and civil penalties as the law is enforced by the Minnesota Department of Labor and Industry.
If your subcontractor cannot meet the 9-factor test to be considered an independent contractor, then they will be considered an employee. If that is the case, then you, as the employer, should have been withholding taxes and paying worker’s compensation insurance, and unemployment taxes. The IRS and other Minnesota agencies can also pursue claims against you for money owed if you have misclassified your subcontractors as independents instead of employees. To find out what you can do to protect yourself, your license, and to make sure you are compliant with Minnesota law, contact our office today.