Minnesota Law on Misclassifying Employees Singles Out Construction Industry

The construction industry should be especially vigilant about a new Minnesota law that significantly increases penalties for employers misclassifying employees as independent contractors, write Thomas R. Revnew and Kurt Erickson of Littler.

The law introduces a new 14-factor test for the construction industry to determine whether a construction worker is an employee or an independent contractor. The test, effective March 1, 2025, focuses on the time services were provided.

The new or newly-clarified factors in the test could lead to unintended misclassifications, the authors write. For example, if a contractor pays its subcontractors before it receives an invoice, it could be found to have misclassified the workers.

Contractors need to be extra vigilant that their subcontractors’ registrations and licenses remain valid through the entire time they are performing work.  Inadvertent lapses could lead to significant misclassification liabilities.

Under the new law, which takes effect July 1, all employers are subject to liability for:

1. Failing to classify or treat an individual as an employee under any applicable statute
2. Failing to disclose someone as an employee to a government agency
3. Requiring an employee to enter into an agreement or complete a document that mis-classifies him or her as an independent contractor.

The state’s labor department will have more enforcement powers, including the issuance of stop orders in the construction industry.

Construction contractors face penalties up to $10,000 for each violation, with additional fines for failing to report individuals as employees to a state agency. The state labor department can order compensatory damages to affected workers in several forms, including overtime, retirement plans, insurance, contributions to unemployment, Social Security, and Medicare.

To learn more about the importance of classifying employees correctly, read Miranda Zolot’s thought leadership piece for Today’s General Counsel.