Misclassification in Construction

Regardless of the industry, it is illegal for employers to misclassify workers as independent contractors when they are actually employees. It is also illegal for employers to ask a worker to complete documents that misclassify them and to ask workers who are employees to register as a construction contractor.

Minnesota changed its worker classification test for construction effective March 1, 2025. This new 14-factor test is for commercial or residential construction or improvement services provided or performed on or after March 1, 2025 (prior to March 1, 2025, a nine-factor test is the law). The now 14 legal requirements are:

“(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:  (i)  holds  a  federal  employer identification number if required…; (ii) holds a Minnesota tax identification number if required…; (iii) has received and retained 1099 forms for income received for building construction or improvement services provided or performed, if required…; (iv) 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; and (v) has completed and provided a W-9 federal income tax form to the person for whom the services were provided or performed…;

(5) is in good standing as defined by section 5.26, if applicable;

(6) has a Minnesota unemployment insurance account if required…;

(7) has obtained required workers’ compensation insurance coverage if required…;

(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: (i) 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; (ii) is fully executed no later than 30 days after the date work commences; (iii) identifies the specific services to be provided or performed under the contract; (iv) 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; and (v) 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; and

(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.” Minn. Stat. § 181.723, subd. 4(a).

Spangler and de Stefano, PLLP advises businesses on a wide range of employment issues.

The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Spangler and de Stefano, PLLP and the reader. The information contained herein is not offered as legal advice and should not be construed as legal advice.