Determining independent contractor or employee status

Note:  The following information is a general outline, subject to statutory change and is not intended to serve as a substitute for the advice of a private attorney. The terms "employer" and "worker" are used in the following information and are not to be given a literal meaning nor do they correspond to "employer" and "employee" as defined in the Minnesota Workers' Compensation Act. They are used as a manner of convenience to distinguish between one who pays to have a service performed and one who is paid to perform the service.

Independent contractor in construction

Effective Jan. 1, 2009, determination of independent contractor status for many individuals who perform commercial or residential building construction or improvements in the public or private sector is governed by Minnesota Statutes 181.723.

See independent contractor exemption certificate for more information about this law.

Independent contractor in the trucking and messenger/courier industries

Effective Aug. 1, 2009, determination of independent contractor status for people operating a car, van, truck, tractor or truck-tractor that is licensed and registered by a governmental motor-vehicle agency is an employee unless the seven factors specified in Minnesota Statutes 176.043 are present.

Independent contractor for other occupations

Individuals who are independent contractors with no employees are not covered by workers' compensation insurance unless the entity contracting with the independent contractor elects to purchase insurance for that individual or the independent contractor chooses to purchase coverage for him or herself. The workers' compensation statute does not contain a definition of "independent contractor."

When a question arises about whether a particular relationship is that of employer-employee or that of two entities contracting independently, a five-factor test has developed through case law that generally allows an employer or employee to make some judgments concerning the appropriate characterization. This test involves analyzing the following five factors.

The degree of control one party has the right to exert over another has become the primary factor to consider. One party's right to control over another's job duties is an indication that the first is an employer. Hunter v. Crawford Door Sales 501 N.W.2d 623 (1993). To analyze the control factor in a particular situation, it may be helpful to ask the following questions, bearing in mind the factors that show evidence of control must be weighed against those that show an absence of control. The answers are not meant to compel a particular conclusion but should be used merely as a guide.

Analyzing the control factor

Is the worker required to comply with instructions about when, where and how the work is to be done? The control factor tends to be present if the employer has the right to instruct.

Has the worker been given any specific training by the employer? If so, this may be an indication the employer wants the services completed in a particular manner, giving rise to an employer-employee relationship.

Is there a requirement that the worker must perform the work personally and not hire a substitute without the permission of the employer? The element of control may then be present, indicating the employer is interested in both the methods and the results.

Does the worker have a continuing relationship with the employer or is the contact sporadic or infrequent? If the arrangement contemplates continuing or recurring work, this may indicate evidence of control.

Does the worker devote full time to the employer or is the worker free to work for others during the same time period? If the worker is restricted from accepting other gainful employment, the control factor may be present.

Is the worker required to make reports to the employer? This indicates the worker must account for his or her actions and may be an element of control.

Does the employer pay for business and travel expenses? If so, it appears the employer may be concerned about controlling the worker's business activities and expenses.

Is the worker in a position to realize a profit or suffer a loss as a result of doing this job? If not, he tends to appear more like an employee than an independent contractor.

Is the worker the master of his or her own time? If the employer sets the hours and days of work, this may be an indication of control.

The other four factors then are to be given weight in this determination.

In 1986, the commissioner of the Department of Labor and Industry was authorized by the Legislature to create rules to further define the term "independent contractor." Minnesota Rules Chapter 5224 contains guidelines for asserting independent contractor or employee status for 34 specific occupations. The rules define the particular occupation and then list certain criteria that must be substantially met for the person in that occupation to be characterized as either an independent contractor or an employee. If all of the criteria are not met, Minnesota Rules, part 5224.0320 provides additional general criteria to evaluate whether the person is an employee or an independent contractor.

The occupations identified within the rules include artisans*, barbers, bookkeepers and accountants, bulk oil plant operators, collectors, consultants, domestic service, babysitters, industrial homeworkers, laborers*, commission salespeople or manufacturers representatives, traveling salespeople, house-to-house dealer salespeople, agent drivers, photographers' models, professional persons, doctors of medicine -- part time for industrial firms, real estate and securities salespeople, registered and practical nurses, unlicensed "nurses," taxicab drivers, timber fellers, sawmill operators, truck owner-drivers*, waste materials haulers*, messenger/couriers*, variety entertainers, sports officials, jockeys and trainers, Minnesota Rules, Parts 5224.0020 through 5224.0312. Where the occupation is not listed the rules give general criteria and factors to consider, Minn. Rules Parts 5224.0302 through 5224.0340.

*Note:  The factors in M.S. 181.723, rather than Minn. Rules, parts 5224.0020 and 5224.0110, govern the independent contractor status of artisans and laborers doing commercial or residential building construction or improvement for a contractor. The factors in M.S. 176.043, rather than Minn. Rules, parts 5224.0290, 5224.0292 and 5224.0292, govern the independent contractor status of truck owner-drivers, waste materials haulers and messenger/couriers.

Further information

For further information, call DLI Benefit Management and Resolution at (651) 284-5005 or
1-800-342-5354.