Worker misclassification has real, lasting consequences for Minnesota workers and understanding the differences is key to securing your rights. Misclassification isn’t just a legal issue—it impacts your financial future, benefits, and protections on the job. This guide breaks down the distinctions, laws, and implications of worker misclassification for Minnesota’s workforce.
Understanding Worker Classification in Minnesota
Legal Definitions and Distinctions
Minnesota distinguishes between two types of workers—independent contractors and employees—based on the nature of their working relationship. Independent contractors typically work under a contractual agreement and maintain control over how they complete tasks, while employees are subject to the management and direction of their employer. The degree of control, financial arrangement, and the overarching relationship are key factors in determining classification. Unlike independent contractors who lack these supports, employees often receive health coverage, retirement plans, overtime pay, paid time off, and other benefits. Accurately understanding these legal definitions helps workers identify potential misclassification and lost entitlements.
Common Misclassifications and Their Implications
Misclassification happens when workers are labeled as independent contractors despite fitting the criteria of employees, and it carries heavy consequences. Employers may misclassify employees to deny them benefits like paid leave or workers' compensation, leaving these workers vulnerable. Businesses face stiff penalties and legal action for this practice, while workers lose access to unemployment insurance and statutory workplace protections. Misclassification can strip workers of their legal rights and access to benefits they rightfully deserve. This practice not only disadvantages workers financially but also perpetuates abuse by failing to address systemic unfairness.
Minnesota Labor Laws and Regulations
Key Minnesota Statutes Affecting Worker Classification
Worker classification is tightly regulated in Minnesota through laws like the Minnesota Fair Labor Standards Act (MFLSA) and other statutes related to worker misclassification. The MFLSA and these statutes establish employment standards and criteria used to determine whether a worker qualifies as an employee or an independent contractor. Amendments to Minnesota law have enhanced worker protections, reinforcing compliance among Minnesota employers.
On July 1, 2024, Minnesota enacted stricter laws to protect workers that should be classified as employees but are improperly classified as independent contractors. Workers who are misclassified may be entitled to:
- Minimum wage
- Overtime pay
- Shift differentials
- Vacation pay
- Sick pay, and other forms of paid time off
- Health insurance
- Life and disability insurance
- Retirement plans, savings plans, and any other form of benefit
- Employer contributions to unemployment insurance
- Social Security and Medicare
- Costs and expenses incurred by the worker
- A penalty against the employer of up to $10,000
See Minn. Stat. § 181.722.
For non-construction workers, Minnesota law looks to the following factors to determine if a worker is an employee or independent contractor:
(1) The right to control the means and manner of performance;
(2) the mode of payment;
(3) the furnishings of material or tools;
(4) the control of the premises where the work is done; and
(5) the right of the employer to discharge.
See generally Minn. Stat. § 181.722 (referring to unemployment and workers’ compensation law factors). The Minnesota Department of Labor and Industry established 34 different industry-related factors for review for workers’ compensation purposes. These laws can be confusing for workers and consulting with an experienced legal professional can provide guidance.
For workers in the construction industry, to be an independent contractor, the following requirements must be met for the individual operating as a business:
- was established and maintained separately from and independently of the person for whom the services were provided or performed;
- 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;
- 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;
- is in compliance with all of the following:
- holds a federal employer identification number if required by federal law;
- holds a Minnesota tax identification number if required by Minnesota law;
- 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;
- 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
- 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;
- is in good standing as defined by section 5.26, if applicable;
- has a Minnesota unemployment insurance account if required by chapter 268;
- has obtained required workers’ compensation insurance coverage if required by chapter 176;
- holds current business licenses, registrations, and certifications if required by chapter 326B and sections 327.31 to 327.36;
- is operating under a written contract to provide or perform the specific services for the person that:
- 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;
- is fully executed no later than 30 days after the date work commences;
- identifies the specific services to be provided or performed under the contract;
- 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
- the requirements of item (ii) shall not apply to change orders.
- 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;
- 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;
- incurs the main expenses and costs related to providing or performing the specific services under the written proposal, contract, or change order;
- 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
- 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.
See Minn. Stat. § 181.723, subd. 4. Note that the 2024 changes to the construction worker classification law now requires insurance, licensure and contract requirements that should be carefully reviewed when determining classification.
Staying informed about these laws empowers workers to identify misclassification and take the necessary legal steps to secure justice.
Comparison with Federal Standards
Federal law and labor regulations, such as the Fair Labor Standards Act (FLSA), provide essential worker safeguards, yet they often differ from Minnesota-specific statutes. For example, Minnesota’s stricter worker classification criteria might exceed federal standards, leaving room for discrepancies in how workers are treated. Deciphering these differences is critical, as inaccurate adherence to either set of standards can lead to unjust outcomes. Minnesota workers benefit when both state and federal laws work in tandem to uphold their rights. Proactive engagement with these laws ensures fewer gaps in employment protections and clearer worker designations.
Employee Benefits and Protections
Access to Benefits and Workplace Protections
Workers classified by their employer as employees might receive comprehensive workplace benefits, including healthcare, retirement plans, and paid time off, none of which are automatically available to independent contractors. Beyond financial perks, legal safeguards like anti-discrimination laws, fair wages, and safe working conditions protect employees from workplace harm but do not necessarily extend the same protections to those labeled as independent contractors. Awareness of these benefits ensures employees claim all they’re entitled to while holding employers accountable. Strong benefits and protections guarantee stability and fairness in the workplace.
Unemployment and Workers' Compensation
Employees in Minnesota enjoy crucial protections like unemployment benefits and workers' compensation, ensuring financial relief during hardships like layoffs or injuries. Conversely, independent contractors must rely solely on personal savings or insurance due to their exclusion from such benefits. These differences make accurate classification fundamental. Misclassified workers may unfairly miss out on these essential protections, creating unstable or unjust work conditions. Employees should ensure they receive everything owed, especially when these benefits are critical during emergencies.
Making the Right Choice: Factors to Consider
Evaluating Job Offers and Employment Contracts
When reviewing job offers or contracts, the classification—employee or independent contractor—should be a top consideration. Scrutinize the control the employer exerts, payment structures, and contract terms to ensure clarity and fairness. Misclassification can mean losing out on key entitlements or being subjected to unrealistic demands. Workers should be proactive by thoroughly reading contracts and consulting an attorney with questions. Crafting informed employment decisions helps protect workers from being taken advantage of by employers.
Seeking Legal and Professional Advice
Worker classification laws are complex, but professional guidance can provide assistance in navigating this landscape. Legal professionals can clarify classification requirements, address disputes, and advocate for wrongfully misclassified workers demanding fair compensation. Nichols Kaster PLLP stands ready with experienced attorneys who understand the core of workers’ rights and employment law.
Lawyers for Independent Contractors in Minneapolis, MN
Worker classification isn’t just a formality—it’s your access to fairness, benefits, and protections in the workplace. Misclassification robs workers of their rights and can have dire financial consequences. At Nichols Kaster PLLP, located in Minneapolis, our knowledgeable team is your ally in pursuing justice. Whether you’re fighting misclassification or seeking clarification on your status, we’re committed to empowering Minnesota’s workforce.
We represent all types of workers across a wide variety of industries, such as full-time employees, part-time employees, independent contractors, tipped workers, laborers, commission-based employees, and others. We are here to help you fight for your rights and pursue the fair compensation you are owed. Contact us today at (877) 344-4628 for a free consultation and review of your potential claims.