Frequently Asked Questions - ICEC

Common questions and answers about the Independent Contractor Exemption Certificate

NOTE: The 2010 legislature extended the renewal period for the ICEC from two years to four years. Anyone who obtained an ICEC before March 1, 2009, will not have to renew until March 1, 2013. All other ICECs are valid for four years from the date of issuance

This change is found in Session Laws Chapter 347, Article 3, Section 1 and amends Minn. Stat.  181.723, subds. 5(b) and 5(c).

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• Why is this certification required?
• Who is covered by this law?
• So if I form a corporation or LLC, this doesn't apply to me?
• If I already have my residential building contractor license, do I need an ICEC?
• What should I include in my template contract?
• When was the law effective?
• I've heard about a new 2-percent income tax withholding requirement for construction contractors. Can you tell me more about it?
• What if someone doesn't obtain a certificate, or a person hires someone without a certificate?
• If an individual has an exemption certificate, is he or she always considered an independent contractor?
• What are the nine statutory conditions to be an independent contractor?
• How do I apply for the exemption certificate?
• How do I find out if someone is properly certified?
• Questions?

Why is this certification required?
According to the Office of the Legislative Auditor, a conservative estimate shows 14 percent of Minnesota employers (subject to employment insurance tax) misclassified at least one worker as an independent contractor in 2005. Workers misclassified as independent contractors do not receive the benefits and protections which should be available to them. To address misclassification of workers, in 2007 the legislature enacted Minnesota Statutes, section 181.723 which requires that certain individuals who wish to work as independent contractors in the construction industry must apply for and be granted independent contractor exemption certificates.

Who is covered by this law?
This law applies to individuals performing public or private sector commercial or residential building construction or improvement services. It does not apply to, and DLI cannot issue exemption certificates to business that are registered as another business entity with the Minnesota Secretary of State, including: corporations, LLCs and partnerships. Also, the ICEC does not apply to construction sales, many types of landscaping (see subd. 2 of Minnesota Statutes, section 181.723) construction design, manufacturing, cleanup, deliveries or maintenance.

These businesses are characterized as contracting, performing work and receiving compensation from another contractor. The ICEC is only required for independent contractor sole proprietorships who subcontract.

The law applies only if the individual is performing services in the course of the hiring person's trade, business, profession, or occupation. For example, the law would apply if the individual is roofing a house under a contract with a licensed residential remodeling company, but it would not apply if the individual is roofing a house under a contract directly with the homeowner.

So if I form a corporation or LLC, this doesn't apply to me?
While it is true that the ICEC requirements do not apply to business entities such as corporations or LLCs, forming a business entity does not exempt you from the current requirements regarding the nine-factor test that needs to be met for you to be treated as an independent contractor as opposed to an employee.  In other words, there will be penalties for you and your employer if you are treated as an independent contractor but are actually an employee based on the nature of your relationship with your employer, even if you are operating under a business entity.

There are also legal, tax, and accounting ramifications involved in creating a business entity.  You should consult an attorney or financial professional before making a decision regarding the business form under which you intend to operate.

If I already have my residential building contractor license, do I need an ICEC?
Yes. A residential building contractor license represents the contractor has passed the tests to prove their skill and ability. The ICEC represents the status of the independent contractor as a business entity as opposed to the status of being an employee. It is not a license but a certificate certifying that the person meets all the qualifications of an independent contractor instead of being required to be considered an employee by the contractor.

What should I include in my template contract?
View the Template Contract Checklist.

When was the law effective?
The law became effective for services performed on or after Jan. 1, 2009. Independent Contractor Exemption Certificates issued before March 1, 2009 are effective until March 1, 2013. Certificates issued after then are effective for four years. (Initially, ICECs were valid for two years. The 2010 legislature extended the ICEC to four years).

I've heard about a new 2-percent income tax withholding requirement for construction contractors. Can you tell me more about it?
That is a new initiative from the Minnesota Department of Revenue. Visit its Web site for more details.

What if an individual does not obtain an exemption certificate, or a person hires someone without one to perform building construction or improvement services?
An individual covered by the law who does not have an ICEC is an employee of the hiring person, and not an independent contractor. The hiring person will be considered the employer of the individual, and as such, must comply with all the obligations of an employer for the purposes of workers' compensation, unemployment compensation, OSHA, labor standards and child labor laws. There are penalties for failure to comply with an employer's obligations under these laws, such as failure to obtain workers' compensation insurance, pay unemployment insurance tax or comply with the employment laws. In addition, penalties of up to $5,000 may be assessed for each violation of Minn. Stat. § 181.723, subd. 7

If an individual has an ICEC, does that mean he or she is considered an independent contractor for everything they do?
No. In order to be considered an independent contractor, the individual must have a current ICEC and, when performing services listed on the exemption certificate, must also be operating as an independent contractor according to the nine conditions set forth in the statute.

What are the nine statutory conditions to be an independent contractor?

An individual, who holds an ICEC, is an independent contractor if he or she:

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.

How do I apply for the exemption certificate?
Individuals who work in construction and wish to obtain independent contractor status must submit an application to DLI for review. The application form and a list of required documents individuals must provide to show they have the factors (above) in place that would allow them to function as an independent contractor. Visit the apply page for details and to download an application.

Applications will be processed within 30 days. Applications may be hand delivered or mailed.

The Department of Labor and Industry has published rules that set forth information and documentation that is proposed to be required as part of the application for an independent contractor exemption certificate.

How do I find out if someone is property certified?
Visit the Contractor License/Certificate Lookup Web page. The hiring person will need to verify the individual's identity and confirm that the individual has an exemption certificate for the services they are offering to provide as an independent contractor.

Questions?

For more information about the Independent Contractor Exemption Certificate, contact the ICEC section at the Department of Labor and Industry by:

	Phone:	(651) 284-5074
	email:	dli.ic@state.mn.us
	Submit all written correspondence to:
		Department of Labor and Industry Independent Contractor Exemption Certificate P.O. Box 64225 St. Paul, MN 55164-0225