Monday, September 13, 2010

Are You Really an Independent Contractor? Construction Workers and Minnesota Workers’ Compensation

Effective January 1, 2009, the Minnesota legislature changed the law as it pertains to defining who is an “independent contractor” in the construction trades for purposes of workers’ compensation, unemployment, income tax, and other laws.

In order to be considered an “independent contractor” under the new statute, an individual construction worker must hold a valid Independent Contractor Exemption Certificate, and meet nine additional factors:
  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 person has performed services in the previous year for which the individual is seeking the independent contractor exemption certificate;
  3. operates under contracts to perform specific services for specific amounts of money and under which the individual controls the means of performing the services;
  4. incurs the main expenses related to the service that the individual performs under contract;
  5. is responsible for the satisfactory completion of services that the individual contracts to perform and is liable for a failure to complete the service;
  6. receives compensation for service performed under a 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 contracts to perform service;
  8. has continuing or recurring business liabilities or obligations;
  9. the success or failure of the individual's business depends on the relationship of business receipts to expenditures.

Most paid-per-hour construction laborers will not meet these factors.

Under Minnesota Workers’ compensation law, a construction worker who is an independent contractor who is hurt on the job is not eligible for workers’ compensation benefits, including medical benefits, wage loss benefits, permanency benefits, and rehabilitation/retraining benefits.
Unfortunately, due to the economic crash, particularly in the housing market, commercial and residential construction contractors are suffering financially. Some less scrupulous contractors, in an effort to cut cost corners, are hiring construction laborers, and calling them “independent contractors.” They do this so as to avoid paying for workers’ compensation insurance, income tax, unemployment tax, and complying with certain OSHA requirements. With so many construction workers out of work for the last couple years, more and more are forced to look to these less reputable contractors for employment.

I routinely see advertisements for construction workers wanted on Craigslist that require you to agree that you will be an “independent contractor,” although it is pretty clear that you’d actually be an employee under the law. Here’s a couple examples:

Concrete and repairs (SW Hennepin County)
Small concrete company looking for good people. Must show pride in workmanship and be dependable. Need to be independent contractor with EIN, but can help get you started. Must live close by. Flat work experience a plus, can train for ICFs and decorative. My interviews take a day or two of work; try it see if you like it and are a fit for our small crew. You will be paid cash for the day or two. If it works out compensation is flexible.
Painter (Entire metro)
Im looking for a painter for some part time possibly full time work. Need to have an LLC. Let me know what you have for experience, tools, vehicle, what part of town you live in and wage desired. Thanks.
Shingler or Clean up guy ASAP Join a Crew (Stillwater)
We are looking for an experienced shingler to join our crew or a guy for tear off and clean up. Unexperienced will get $15.00/hr. and experienced roofer with get $20.00/hr. Must have valid drivers lic. with own transportation. Must have General Liability insurance must be LLC, Inc, or have your independent contractor exemption certificate. Please email or call 651-***-****.
Independent framers needed (Edina/Chaska)
I still have a need for more framing carpenters, must have your own insurance, the only tools you need is your tool belt. You can start tomorrow. Please send your company info and compensation requirements.
PROCEED WITH CAUTION. I have personally seen several construction contractors in the Twin Cities Metro area trying to get new hires to sign paperwork stating that they are independent contractors, and that they are either a LLC (Limited Liability Corporation), or that they have an Independent Contractors Exemption Certificate from the Minnesota Department of Labor and Industry. In order to be considered an independent contractor for purposes of workers’ compensation, and other laws, a construction worker MUST have an Independent Contractors Exemption Certificate. In fact, state law prohibits working as an independent contractor unless you have first obtained the Exemption Certificate. The law also prohibits a person from hiring a someone as an “independent contractor” unless they have the Independent Contractors Exemption Certificate.

Now, let’s say you suffer an injury working for one of these unscrupulous contractors. You don’t have an Independent Contractors Exemption Certificate because you won’t qualify for one, but your employer makes you sign something stating that you are an independent contractor. Are you out of luck? No, I don’t think so.

Several of the forms I’ve seen contractors using to try to get around this law require the applicant to affirm that he or she does have an Independent Contractors Exemption Certificate. The law, however, requires the person hiring the “independent contractor” to retain a copy of the person’s Exemption Certificate for five years. So, if the hiring contractor never asks to actually see a copy of your Exemption Certificate, or checks the Department of Labor and Industry website to see if you are listed as a valid Exemption Certificate holder, it’s pretty hard for them to claim after the fact that they thought you really did have an Exemption Certificate when you did not.

Since this law is relatively new, there’s little case law guidance to tell us workers’ compensation lawyers how a workers’ compensation judge would decide such a case. I’m inclined to think that most construction workers in this situation would be considered employees for purposes of Minnesota workers’ compensation law, which means you would be entitled to benefits if you sustain an on-the-job injury.

To read more about the requirements for the Independent Contractor Exemption Certificate, check out the following:

1. Minnesota Statute §181.723
2. Fact Sheet from the MN Department of Labor & Industry
3. My previous post on this topic
4. The Independent Contractor Exemption Certificate application form
5. Brochure from the MN Department of Labor & Industry
6. FAQ from the Department of Labor & Industry
7. Factsheet from the Dept. of Labor & Industry

These bad economic times have hit the construction industry particularly hard. Hundreds and hundreds of skilled Minnesota construction workers have been out of work for a long time. As tempting as it is to take a job through one of these companies that try to get around the new Independent Contractor rules, keep in mind that it is against the law. Moreover, $10.00 cash per hour is probably not worth it, if you are actually complying with the law, i.e., reporting your earnings and paying the full state and federal tax on your earnings, paying unemployment compensation, paying social security, paying for workers’ compensation insurance, and paying for liability insurance. Moreover, it’s probably not worth risking the fines you may be subjecting yourself to if you get caught working as an independent contractor without a valid certificate, risking a serious on-the-job injury with questionable workers’ compensation coverage, risking tax penalties, or risking a lawsuit with no insurance when the contractor gets sued for something.

That being said, if you were hurt doing residential or commercial construction work after January 1, 2009, and you were told by your employer that you were an “independent contractor,” so you couldn’t make a claim for workers’ compensation benefits, you should definitely contact a Minnesota workers’ compensation lawyer.

For a free, confidential, no-obligation, consultation with one of our lawyers to see if you have a workers’ compensation claim for on-the-job injuries you sustained doing residential or commercial construction as an “independent contractor,” call Meuser & Associates at 877-746-5680 or click here to send us an email.

Visit us at to learn more about Minnesota Workers' Compensation.
Related Posts with Thumbnails