MN lawmakers doubled down on misclassification enforcement in the June 2025 Jobs Bill, expanding penalties, granting DLI new funding, new personnel, and “rapid response” powers, promising faster investigation of complaints and immediate stop work orders. The State has also allocated funds for a comprehensive study of the problem over the next two years. Despite a somewhat subdued rollout of last year’s misclassification enforcement initiatives, contractors should take note: this issue is not going to go away. 

Introduction 

Minnesota is clearly stepping up its efforts to tackle worker misclassification. Construction contractors adjusting to the 2024 misclassification law should take note of several provisions included in the 2025 Jobs and Labor Omnibus Bill, which signal heightened scrutiny and enforcement in one of the state’s most closely watched industries. The latest legislation bolsters Minnesota’s recently enacted wage theft and misclassification laws, which already hold contractors liable for unpaid wages and benefits owed by subcontractors. Construction contractors may be subject to substantial fines and penalties for unpaid wages and benefits even when misclassification occurs among their subcontractors. Key provisions of those laws include: 

• A strict 14-factor Independent Contractor test, effective March 1, 2025.
• Expanded DLI authority to issue stop work orders if misclassification is found, also effective March 1, 2025. 
• Expansion of agency authority to investigate and penalize misclassification practices at all tiers of contracting. 
• Civil fines of up to $10,000 per misclassified worker.
• Double damages for unpaid wages and benefits. 
• Personal liability for owners and employees of companies who “could have known” about violation of the laws. 
• Mandatory annual reporting from state agencies on misclassification enforcement metrics, and inter-agency partnership in investigations. 

Here’s what contractors need to know: 

Expanded Enforcement Capacity and Funding 

To enhance its oversight capabilities, the Minnesota Department of Labor and Industry (DLI) received $281,000 in FY2026 and $286,000 in ongoing funding to support dedicated misclassification enforcement. This investment adds 2.5 full-time staff tasked with investigating suspected violations, an effort prompted by a notable uptick in complaints across multiple industries, including construction, transportation, and healthcare. 

Introduction of “Rapid Response” Authority 

As of March 1st, DLI is empowered to issue stop-work orders when credible evidence of misclassification arises. The “rapid response” authority granted in the latest bill strengthens the agency’s ability to respond to complaints quickly and disrupt noncompliant operations with immediate stop work orders. 

Increased Penalties for Unemployment Tax Evasion 

The jobs bill adds new penalties for unpaid unemployment benefits the already substantial list of potential fines and penalties for those found to have misclassified workers.  

Commissioning of Misclassification Fraud Impact Report 

The bill also funds a comprehensive misclassification study, allocating $460,000 in FY2026 and $160,000 in FY2027 for the creation of a Misclassification Fraud Impact Report, due by January 15, 2027. The report will assess fiscal consequences to affected workers, compliant businesses, and key public programs, as well as inform future policy proposals and enforcement strategies. The initiative follows a 2024 Legislative Auditor estimate that misclassification fraud may cost Minnesota between $1–2 billion annually. 

Final Thoughts

While Minnesota’s misclassification reforms aim to protect workers and ensure fair competition regardless of immigration status, their intersection with federal immigration policy complicates State enforcement efforts and creates an environment of uncertainty and confusion for workers and contractors. Expanded deportation initiatives and the rollback of Temporary Protected Status have destabilized the labor force in an industry already facing chronic shortages. DLI and other Minnesota agencies continue to emphasize outreach and education initiatives rather than aggressive enforcement in this uncertain context, but contractors should not become complacent: legislators have reaffirmed their intent to pursue and penalize worker misclassification.

Recommended Compliance Measures 

To mitigate risk, construction firms should: 

• Conduct internal audits to verify that contractors and subcontractors satisfy Minnesota’s independent contractor criteria
• Review and revise contracts to reflect current documentary requirements
• Request and monitor payroll records from subcontractors and vendors
• Provide training for HR and project managers on misclassification standards and liability exposure

Let us handle the legal heavy lifting, so you can focus on what you do best: building. You can reach us at info@northstarlaw.com, via our website at www.northstarlaw.com, or via phone at 651-330-9678.