Despite the best efforts of CMBA, Housing First Minnesota and others business advocates, a bill making it more difficult to define and hire independent contractors passed during the recently concluded 2024 Legislative Session.  Described as making it more difficult to "misclassify" workers, the bill, (SF4483/HF4444) replaces the state's previous list of nine factors defining an independent contractor, with 14 more complicated and detailed factors.

The Minnesota Department of Labor and Industry (DLI) is now working to figure-out how the new language will be implemented, and how to inform/educate the business community about what needs to be done.

Previous state law: 9 factors defining an independent contractor:

An individual who performs public- or private-sector commercial or residential building construction or improvement services in Minnesota is an independent contractor only if they meet all of the following requirements:

1. maintains a separate business with the individual's own office, equipment, materials, and other facilities;

2. 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 if the individual has performed services in the previous year;

3. is operating under contract to perform the specific services for the person for specific amounts of money and under which the individual controls the means of performing the services;

4. is incurring the main expenses related to the services that the individual is performing for the person under the contract;

5. is responsible for the satisfactory completion of the services that the individual has contracted to perform for the person and is liable for a failure to complete the services;

6. receives compensation from the person for the services performed under the contract on a commission or per-job or competitive bid basis and not on any other basis;

7. may realize a profit or suffer a loss under the contract to perform services for the person;

8. has continuing or recurring business liabilities or obligations; and

9. the success or failure of the individual's business depends on the relationship of business receipts to expenditures.

Newly PASSED legislation: 14 new factors defining an independent contractor:

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 by federal law; (ii) holds a Minnesota tax identification number if required by Minnesota law; (iii) 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; (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 in the previous 24 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 if required by federal law;

5. is in good standing as defined by section 5.26 and, if applicable, has a current certificate of good standing issued by the secretary of state pursuant to section 5.12;

6. has a Minnesota unemployment insurance account if required by Chapter 268;

7. has obtained required workers' compensation insurance coverage if required by Chapter 176;

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 before the contracted-for services commence; (iii) identifies the specific services to be provided or performed under the contract; and (iv) provides for a stipulated sum, lump sum, or fixed price in payment for completion of the specific services to be provided or performed under the contract. A cost-plus contract with or without a cap, labor and materials contract, labor contract, or any other type of contract that provides for payment for services provided or performed to be calculated in whole or in part based on an hourly rate, unit rate, or any basis other than a stipulated sum, lump sum, or fixed price does not meet this requirement;

10. submits invoices and receives payments for completion of the specific services provided or performed under the written contract in the name of the business entity. Payments made in cash do not meet this requirement;

11. the terms of the written contract provide the business entity sole direction and control over the means of providing or performing the specific services, and the business entity in fact directs and 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 contract, including labor, tools, materials, vehicles, equipment, supplies, office space or other facilities, and overhead expenses and costs;

13. is responsible for the satisfactory completion of the specific services to be provided or performed under the written contract and is responsible, as provided under the written contract, 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 contract are less than or greater than the written contract's stipulated sum, lump sum, or fixed price.

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CMBA and Housing First Minnesota are working together to get more information to our members as soon as it becomes available.  As one industry attorney put it:  "My role is to tell our members what is the speed limit, and to tell them to slow down to follow the speed limit. Right now, I can't tell anyone what is the speed limit because it hasn't been posted, and DLI has not yet indicated what will be the speed limit."

Watch for more information from CMBA, and please contact us with specific questions or concerns about determining independent contractors under the new law.  We will do our best to follow-up with DLI for better direction.  CMBA also encourages members and other businesses to seek qualified legal counsel about how best to implement the new independent contractor test in each specific business.

For more information, contact:  Steve Gottwalt, CMBA Government Affairs, 952-923-5265, steve@cmbaonline.org

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