This post is part of a series of posts on common issues Minnesota employers face.
Independent Contractors In The Construction Industry
Minn. Stat. 181.723, requires individuals (not corporations, LLCs or partnerships) who work as independent contractors in public or private commercial or residential building construction to obtain from the Minnesota Department of Labor and Industry an Independent Contractor Exemption Certificate (ICEC). For purposes of state’s workers compensation, unemployment insurance, wage and hour, and occupational safety and health laws, individuals doing building construction work without an ICEC will be employees of the contractor for whom they are working.
To obtain an ICEC, individuals must complete and submit an application that establishes that they meet the conditions required to operate as an independent contractor. To operate as independent contractors, individuals must be able to meet the conditions set out in the new law’s nine-factor test.
An ICEC permits individuals to work as independent contractors. Certificate holders, however, may work as either independent contractors or as employees. Whether a certificate holder is working as an employee or an independent contractor will depend on the conditions of the particular work relationship. To be an independent contractor, in addition to having the ICEC, the conditions of the work relationship must also meet the nine-factor test:
- 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 and 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
- the success or failure of the independent contractor’s business depends on the relationship of business receipts to expenditures.
Applications for the ICEC are available from the Minnesota Department of Labor and Industry at www.dli.mn.gov/CCLD/ICEC.asp . The application and renewal fee for the certificate is $165. Independent contractors will be required to renew their certificate every two years.
Contractors are obligated to verify that the workers with whom they enter into agreements as independent contractors have a current exemption certificate. Contractors are required to maintain a copy of these certificates for five years. The DLI will maintain a list of certificate holders on its website, and certificates for those individuals will be available for download.
Contractors who employ individuals who do not have an ICEC will face penalties if they do not provide workers’ compensation and unemployment insurance to these individuals, and do not properly withhold state and federal taxes from their employee’s pay.