Why Minnesota Business Owners Must Prioritize Worker Classification Compliance
Minnesota’s new misclassification law is transforming how companies engage independent contractors and employees—specifically in construction, trades, and gig work. Construction-specific enforcement began March 1, 2025, business owners must be proactive in evaluating their team structures to ensure classification compliance.
What Changed?
The state has introduced one of the toughest misclassification enforcement laws in the country. Five major state agencies now work together under a unified task force—the Intergovernmental Misclassification Enforcement and Education Partnership (IMEEP). Their goal: eliminate the misclassification of workers and recover lost wages, taxes, and benefits.
If your company misclassifies someone as an independent contractor (“IC”) when they should legally be considered an employee, the consequences are substantial.
Key Risks for Businesses
Here’s what business owners need to know:
Financial Penalties
- Up to $10,000 per misclassified worker
- $1,000 per day for failing to provide documentation when requested
- Liability for back wages, taxes, unpaid benefits, and workers’ comp premiums
Legal Exposure
- Investigations can go back three years
- Company officers and owners may face personal liability if they knew—or could have known—about the misclassification
- Lawsuits can be brought by employees or the Attorney General, even if the worker signed an IC agreement
Disruption to Operations
- The state can issue stop-work orders that immediately shut down non-compliant job sites or all of a business’ job sites
- Agencies now share data and coordinate enforcement across industries
Special Rules for Construction
As of March 1st, 2025, construction businesses face a strict 14-point test to classify someone as an independent contractor. All 14 criteria must be met, including but not limited to:
- The worker is a registered business entity
- They provide their own tools and equipment
- They have multiple clients
- They invoice under a business name and file independent tax returns
- They carry their own business insurance
Failure to meet any one of the 14 points means the worker is presumed to be your employee.
Why Compliance Should Be a Top Priority
Misclassification can no longer be brushed off as a clerical or administrative issue. It’s a legal and financial risk that touches every aspect of your business—from payroll and HR to insurance and contracts.
Taking action now can prevent costly enforcement later.
Benefits of Compliance:
- Protect your business from fines and lawsuits
- Maintain uninterrupted operations
- Build trust with workers, subcontractors, and regulators
- Position your company as a responsible, law-abiding business partner
What Business Owners Should Do Next
- Conduct an internal audit
Review all contractor relationships. Are your contractors truly independent, or do they resemble employees? - Verify your subcontractors
Request documentation to prove compliance with the new law. - Get ahead of construction rules
If you're in the construction industry, become familiar with the 14-factor compliance test. - Train your team
Ensure that HR, accounting, and project managers understand the new requirements. - Consult legal or compliance professionals
Don't wait until you receive a letter from the state (because in some cases, you will only have three days to turn over the information). A proactive legal review can save your business thousands—or more.
Final Thoughts
Minnesota’s new misclassification law is not just about compliance—it’s about risk management. Business owners who take the time to properly classify their workforce, document relationships, and engage contractors responsibly will be far better positioned to thrive under this new legal landscape.
Avoid penalties, protect your reputation, and stay ahead of enforcement. Now is the time to act.
