Bill Text: MN SF1653 | 2011-2012 | 87th Legislature | Engrossed
NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Independent contractors provisions modification; labor and industry technical conforming provisions
Spectrum: Bipartisan Bill
Status: (Passed) 2012-05-14 - Secretary of State Chapter 295 [SF1653 Detail]
Download: Minnesota-2011-SF1653-Engrossed.html
Bill Title: Independent contractors provisions modification; labor and industry technical conforming provisions
Spectrum: Bipartisan Bill
Status: (Passed) 2012-05-14 - Secretary of State Chapter 295 [SF1653 Detail]
Download: Minnesota-2011-SF1653-Engrossed.html
1.2relating to labor and industry; clarifying employee classification of independent
1.3contractors; providing pilot project for contractor registration; providing for
1.4penalties;amending Minnesota Statutes 2010, sections 181.723, subdivisions
1.51, 3, 4, 7, 15, 16, by adding subdivisions; 289A.31, subdivision 5; 326B.081,
1.6subdivision 3; Minnesota Statutes 2011 Supplement, section 181.723, subdivision
1.75; repealing Minnesota Statutes 2010, sections 181.723, subdivisions 6, 8, 9,
1.810, 11, 12, 14, 17; 290.92, subdivision 31; Minnesota Rules, parts 5202.0100;
1.95202.0110; 5202.0120; 5202.0130; 5202.0140; 5202.0150; 5202.0160.
1.10BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
1.11 Section 1. Minnesota Statutes 2010, section 181.723, subdivision 1, is amended to read:
1.12 Subdivision 1. Definitions. The definitions in this subdivision apply to this section.
1.13 (a) "Person" means any individual, limited liabilitycorporation company, limited
1.14liability partnership, corporation, partnership, incorporated or unincorporated association,
1.15sole proprietorship, joint stock company, or any other legal or commercial entity.
1.16 (b) "Department" means the Department of Labor and Industry.
1.17 (c) "Commissioner" means the commissioner of labor and industry or a duly
1.18designated representative of the commissioner who is either an employee of the
1.19Department of Labor and Industry or person working under contract with the Department
1.20of Labor and Industry.
1.21 (d) "Individual" means a human being.
1.22 (e) "Day" means calendar day unless otherwise provided.
1.23 (f) "Knowingly" means knew or could have known with the exercise of reasonable
1.24diligence.
1.25 (g) "Document" or "documents" includes papers; books; records; memoranda; data;
1.26contracts; drawings; graphs; charts; photographs; digital, video, and audio recordings;
2.1records; accounts; files; statements; letters; e-mails; invoices; bills; notes; and calendars
2.2maintained in any form or manner.
2.3(h) "Business entity" means a person other than an individual or a sole proprietor.
2.4 Sec. 2. Minnesota Statutes 2010, section 181.723, subdivision 3, is amended to read:
2.5 Subd. 3. Employee-employer relationship. Except as provided in subdivision 4,
2.6for purposes of chapters 176, 177, 181A, 182, and 268, as ofJanuary 1, 2009 July 1, 2012,
2.7an individual who performs services for a person that are in the course of the person's
2.8trade, business, profession, or occupation is an employee of that person and that person
2.9is an employer of the individual.
2.10 Sec. 3. Minnesota Statutes 2010, section 181.723, subdivision 4, is amended to read:
2.11 Subd. 4. Independent contractor. (a) An individual is an independent contractor
2.12and not an employee of the person for whom the individual is performing services in the
2.13course of the person's trade, business, profession, or occupation only if(1) the individual
2.14holds a current independent contractor exemption certificate issued by the commissioner;
2.15and (2) the individual is performing services for the person under the independent
2.16contractor exemption certificate as provided in subdivision 6. The requirements in clauses
2.17(1) and (2) must be met in order to qualify as an independent contractor and not as an
2.18employee of the person for whom the individual is performing services in the course of
2.19the person's trade, business, profession, or occupation. the individual is registered with the
2.20Department of Labor and Industry, if required under subdivision 4a, and the individual:
2.21(1) maintains a separate business with the individual's own office, equipment,
2.22materials, and other facilities;
2.23(2)(i) holds or has applied for a federal employer identification number or (ii) has
2.24filed business or self-employment income tax returns with the federal Internal Revenue
2.25Service if the individual has performed services in the previous year;
2.26(3) is operating under contract to perform the specific services for the person
2.27for specific amounts of money and under which the individual controls the means of
2.28performing the services;
2.29(4) is incurring the main expenses related to the services that the individual is
2.30performing for the person under the contract;
2.31(5) is responsible for the satisfactory completion of the services that the individual
2.32has contracted to perform for the person and is liable for a failure to complete the services;
2.33(6) receives compensation from the person for the services performed under the
2.34contract on a commission or per-job or competitive bid basis and not on any other basis;
3.1(7) may realize a profit or suffer a loss under the contract to perform services for
3.2the person;
3.3(8) has continuing or recurring business liabilities or obligations; and
3.4(9) the success or failure of the individual's business depends on the relationship of
3.5business receipts to expenditures.
3.6(b) If an individual is an owner or partial owner of a business entity, the individual is
3.7an employee of the person for whom the individual is performing services in the course
3.8of the person's trade, business, profession, or occupation, and is not an employee of the
3.9business entity in which the individual has an ownership interest, unless:
3.10(1) the business entity meets the nine factors in paragraph (a);
3.11(2) invoices are submitted in the name of the business entity;
3.12(3) the business entity is registered with the secretary of state, if required; and
3.13(4) the business entity is registered with the Department of Labor and Industry,
3.14if required under subdivision 4a.
3.15 Sec. 4. Minnesota Statutes 2010, section 181.723, is amended by adding a subdivision
3.16to read:
3.17 Subd. 4a. Registration pilot project. (a) The commissioner shall implement a pilot
3.18project, effective July 1, 2012, for the registration of persons who perform public or
3.19private sector commercial or residential building construction or improvement services
3.20as described in subdivision 2. The purpose of the pilot project is to evaluate whether the
3.21information obtained through registration assists the Department of Labor and Industry,
3.22the Department of Employment and Economic Development, and the Department of
3.23Revenue to enforce laws related to misclassification of employees. The commissioner
3.24shall issue a report to the legislature no later than January 1, 2014, on recommendations
3.25for amendments to the registration program, including reasonable registration fees to be
3.26used to aid in enforcing misclassification laws. The commissioner must not charge a fee
3.27for registration under the pilot project, but may take the enforcement action specified in
3.28subdivision 8a. The pilot project shall expire on June 30, 2014, unless extended by the
3.29legislature.
3.30(b) Except as provided in paragraph (c), any person who performs construction
3.31services in the state on or after September 15, 2012, must register with the commissioner
3.32as provided in subdivision 5 before performing construction services for another person.
3.33The requirements for registration under this subdivision are not a substitute for, and do
3.34not relieve a person from complying with, any other law requiring that the person be
3.35licensed, registered, or certified.
4.1(c) The registration requirements in this subdivision do not apply to:
4.2(1) a person who, at the time the person is performing the construction services,
4.3holds a current license, certificate, or registration under chapter 299M or 326B;
4.4(2) a person who holds a current independent contractor exemption certificate
4.5issued under this section that is in effect on September 15, 2012, except that the person
4.6must register under this section no later than the date the exemption certificate expires, is
4.7revoked, or is canceled;
4.8(3) a person who has given a bond to the state under section 326B.197 or 326B.46;
4.9(4) an employee of the person performing the construction services, if the person
4.10was in compliance with laws related to employment of the individual at the time the
4.11construction services were performed;
4.12(5) an architect or professional engineer engaging in professional practice as defined
4.13in section 326.02, subdivisions 2 and 3;
4.14(6) a school district or technical college governed under chapter 136F; or
4.15(7) a person providing construction services on a volunteer basis, including but not
4.16limited to Habitat for Humanity and Builders Outreach Foundation, and their individual
4.17volunteers when engaged in activities on their behalf.
4.18 Sec. 5. Minnesota Statutes 2011 Supplement, section 181.723, subdivision 5, is
4.19amended to read:
4.20 Subd. 5. Registration application.To obtain an independent contractor exemption
4.21certificate, the individual must submit (a) Persons required to register under subdivision 4a
4.22must submit electronically, in the manner prescribed by the commissioner, a complete
4.23applicationand the certificate fee required under subdivision 14 according to paragraphs
4.24(b) to (d).
4.25(a) (b) A complete application must include all of the following information about
4.26any individual who is registering as an individual or a sole proprietor, or who owns 25
4.27percent or more of a business entity being registered:
4.28 (1) the individual's full legal name and title at applicant's business;
4.29 (2) the individual'sresidence business address and telephone number;
4.30 (3) theindividual's business name, address, and telephone number; percentage of the
4.31applicant's business owned by the individual; and
4.32(4) the services for which the individual is seeking an independent contractor
4.33exemption certificate;
4.34(5) (4) the individual's Social Security number;.
5.1(6) the individual's or the individual's business federal employer identification
5.2number, if a number has been issued to the individual or the individual's business;
5.3(7) any information or documentation that the commissioner requires by rule that
5.4will assist the department in determining whether to grant or deny the individual's
5.5application; and
5.6(8) the individual's sworn statement that the individual meets all of the following
5.7conditions:
5.8(i) maintains a separate business with the individual's own office, equipment,
5.9materials, and other facilities;
5.10(ii) holds or has applied for a federal employer identification number or has filed
5.11business or self-employment income tax returns with the federal Internal Revenue Service
5.12if the person has performed services in the previous year for which the individual is
5.13seeking the independent contractor exemption certificate;
5.14(iii) operates under contracts to perform specific services for specific amounts of
5.15money and under which the individual controls the means of performing the services;
5.16(iv) incurs the main expenses related to the service that the individual performs
5.17under contract;
5.18(v) is responsible for the satisfactory completion of services that the individual
5.19contracts to perform and is liable for a failure to complete the service;
5.20(vi) receives compensation for service performed under a contract on a commission
5.21or per-job or competitive bid basis and not on any other basis;
5.22(vii) may realize a profit or suffer a loss under contracts to perform service;
5.23(viii) has continuing or recurring business liabilities or obligations; and
5.24(ix) the success or failure of the individual's business depends on the relationship of
5.25business receipts to expenditures.
5.26(b) Individuals who are applying for or renewing a residential building contractor or
5.27residential remodeler license under sections
326B.197, 326B.802, 326B.805, 326B.81,
5.28326B.815, 326B.821
to
326B.86, 326B.87 to
326B.885, and
327B.041, and any rules
5.29promulgated pursuant thereto, may simultaneously apply for or renew an independent
5.30contractor exemption certificate. The commissioner shall create an application form
5.31that allows for the simultaneous application for both a residential building contractor
5.32or residential remodeler license and an independent contractor exemption certificate.
5.33If individuals simultaneously apply for or renew a residential building contractor or
5.34residential remodeler license and an independent contractor exemption certificate using
5.35the form created by the commissioner, individuals shall only be required to provide, in
5.36addition to the information required by section
326B.83 and rules promulgated pursuant
6.1thereto, the sworn statement required by paragraph (a), clause (8), and any additional
6.2information required by this subdivision that is not also required by section
326B.83 and
6.3any rules promulgated thereto. An independent contractor exemption certificate that is in
6.4effect before March 1, 2009, shall remain in effect until March 1, 2013, unless revoked by
6.5the commissioner or canceled by the individual.
6.6(c) Within 30 days of receiving a complete application and the certificate fee, the
6.7commissioner must either grant or deny the application. The commissioner may deny
6.8an application for an independent contractor exemption certificate if the individual has
6.9not submitted a complete application and certificate fee or if the individual does not
6.10meet all of the conditions for holding the independent contractor exemption certificate.
6.11The commissioner may revoke an independent contractor exemption certificate if the
6.12commissioner determines that the individual no longer meets all of the conditions for
6.13holding the independent contractor exemption certificate, commits any of the actions
6.14set out in subdivision 7, or fails to cooperate with a department investigation into the
6.15continued validity of the individual's certificate. Once issued, an independent contractor
6.16exemption certificate remains in effect for four years unless:
6.17(1) revoked by the commissioner; or
6.18(2) canceled by the individual.
6.19(d) If the department denies an individual's original or renewal application for
6.20an independent contractor exemption certificate or revokes an independent contractor
6.21exemption certificate, the commissioner shall issue to the individual an order denying or
6.22revoking the certificate. The commissioner may issue an administrative penalty order to
6.23an individual or person who commits any of the actions set out in subdivision 7. The
6.24commissioner may file and enforce the unpaid portion of a penalty as a judgment in
6.25district court without further notice or additional proceedings.
6.26(e) An individual or person to whom the commissioner issues an order under
6.27paragraph (d) shall have 30 days after service of the order to request a hearing. The
6.28request for hearing must be in writing and must be served on or faxed to the commissioner
6.29at the address or facsimile number specified in the order by the 30th day after service of
6.30the order. If the individual does not request a hearing or if the individual's request for a
6.31hearing is not served on or faxed to the commissioner by the 30th day after service of the
6.32order, the order shall become a final order of the commissioner and will not be subject to
6.33review by any court or agency. The date on which a request for hearing is served by mail
6.34shall be the postmark date on the envelope in which the request for hearing is mailed. If
6.35the individual serves or faxes a timely request for hearing, the hearing shall be a contested
6.36case hearing and shall be held in accordance with chapter 14.
7.1(c) A complete application must also include the following information:
7.2(1) the applicant's legal name; assumed name filed with the secretary of state, if any;
7.3designated business address; physical address; telephone number; and e-mail address;
7.4(2) the applicant's Minnesota tax identification number, if one is required or has
7.5been issued;
7.6(3) the applicant's federal employer identification number, if one is required or
7.7has been issued;
7.8(4) evidence of the active status of the applicant's business filings with the secretary
7.9of state, if one is required or has been issued;
7.10(5) whether the applicant has any employees at the time the application is filed;
7.11(6) the names of all other persons with an ownership interest in the business entity
7.12who are not identified in paragraph (b), and the percentage of the interest owned by each
7.13person, except that the names of shareholders with less than ten percent ownership in a
7.14publicly traded corporation need not be provided;
7.15(7) information documenting compliance with workers' compensation and
7.16unemployment insurance laws;
7.17(8) a certification that the person signing the application has: reviewed it; determined
7.18that the information provided is true and accurate; and determined that the person signing
7.19is authorized to sign and file the application as an agent of the applicant. The name of the
7.20person signing, entered on an electronic application, shall constitute a valid signature of
7.21the agent on behalf of the applicant; and
7.22(9) a signed authorization for the Department of Labor and Industry to verify the
7.23information provided on or with the application.
7.24(d) A registered person must notify the commissioner within 15 days after there is a
7.25change in any of the information on the application as approved. This notification must
7.26be provided electronically in the manner prescribed by the commissioner. However, if
7.27the business entity structure, legal form of the business entity, or business ownership has
7.28changed, the person must submit a new registration application and registration fee, if
7.29any, for the new business entity.
7.30(e) The registered person must remain registered while providing construction
7.31services for another person. The provisions of sections 326B.091 and 326B.094 to
7.32326B.097 apply to this section.
7.33 Sec. 6. Minnesota Statutes 2010, section 181.723, is amended by adding a subdivision
7.34to read:
8.1 Subd. 5a. Web site. (a) The commissioner shall develop and maintain a Web site
8.2on which applicants for registration can submit a registration application. The Web site
8.3shall be designed to receive and process registration applications and promptly issue
8.4registration certificates electronically to successful applicants.
8.5(b) The commissioner shall maintain the certificates of registration on the
8.6department's official public Web site, which shall include the following information:
8.7(1) the registered person's legal business name, including any assumed name, as
8.8filed with the secretary of state;
8.9(2) the person's business address designated on the application; and
8.10(3) the effective date of the registration and the expiration date.
8.11 Sec. 7. Minnesota Statutes 2010, section 181.723, subdivision 7, is amended to read:
8.12 Subd. 7. Prohibited activities. (a) The prohibited activities in this subdivision are
8.13in addition to those prohibited in sections 326B.081 to 326B.085.
8.14(a) (b) An individual shall not:
8.15(1) perform work as an independent contractor who meets the qualifications under
8.16subdivision 6 without first obtaining from the department an independent contractor
8.17exemption certificate;
8.18(2) perform work as an independent contractor when the department has denied or
8.19revoked the individual's independent contractor exemption certificate;
8.20(3) transfer to another individual or allow another individual to use the individual's
8.21independent contractor exemption certificate;
8.22(4) alter or falsify an independent contractor exemption certificate;
8.23(5) misrepresent the individual's status as an independent contractor; or
8.24(6) make a false material statement, representation, or certification; omit material
8.25information; or alter, conceal, or fail to file a document required by this section or any
8.26rule promulgated by the commissioner under rulemaking authority set out in this section.
8.27hold himself or herself out as an independent contractor unless the individual meets the
8.28requirements of subdivision 4.
8.29(b) (c) A person who provides construction services in the course of the person's
8.30trade, business, occupation, or profession shall not:
8.31 (1) require an individual through coercion, misrepresentation, or fraudulent means to
8.32adopt independent contractor status or form a business entity;
8.33 (2) knowingly misrepresentthat an individual who has not been issued or misclassify
8.34an individual as an independent contractorexemption certificate or is not performing
9.1services for the person under an independent contractor exemption certificate is an
9.2independent contractor; or
9.3 (3) contract with or perform construction services for another person without first
9.4being registered if required by subdivision 4a;
9.5(4)make a false material statement, representation, or certification; omit material
9.6information; or alter, conceal, or fail to file a document required by this section or any
9.7rule promulgated by the commissioner under rulemaking authority set out in this section.
9.8contract with or pay another person to perform construction services if the other person
9.9is not registered if required by subdivision 4a. All payments to an unregistered person
9.10for construction services on a single project site shall be considered a single violation. It
9.11is not a violation of this clause:
9.12(i) for a person to contract with or pay an unregistered person if the unregistered
9.13person was registered at the time the contract for construction services was entered into; or
9.14(ii) for a homeowner or business to contract with or pay an unregistered person if
9.15the homeowner or business is not in the trade, business, profession, or occupation of
9.16performing building construction or improvement services; or
9.17(5) be penalized for violations of this subdivision that are committed by another
9.18person. This clause applies only to violations of this paragraph.
9.19(c) A person for whom an individual is performing services must obtain a copy of the
9.20individual's independent contractor exemption certificate before services may commence.
9.21A copy of the independent contractor exemption certificate must be retained for five years
9.22from the date of receipt by the person for whom an individual is performing services.
9.23 Sec. 8. Minnesota Statutes 2010, section 181.723, is amended by adding a subdivision
9.24to read:
9.25 Subd. 8a. Enforcement; remedies; and penalties. Notwithstanding the maximum
9.26penalty amount in section 326B.082, subdivisions 7 and 12, the maximum penalty for
9.27failure to register is $2,000, but the commissioner shall forgive the penalty if the person
9.28registers within 30 days of the date of the penalty order.
9.29 Sec. 9. Minnesota Statutes 2010, section 181.723, subdivision 15, is amended to read:
9.30 Subd. 15. Notice to commissioner; review by commissioner of revenue. When
9.31the commissioner has reason to believe thatan individual who holds a certificate has
9.32failed to maintain all the conditions required by subdivision 6 or is not performing
9.33services for a person under the independent contractor exemption certificate a person has
9.34violated subdivision 7, paragraph (b); or (c), clause (1) or (2), the commissioner must
10.1notify the commissioner of revenue and the commissioner of employment and economic
10.2development. Upon receipt of notification from the commissionerthat an individual who
10.3holds a certificate has failed to maintain all the conditions required by subdivision 6
10.4or is not performing services for a person under the independent contractor exemption
10.5certificate, the commissioner of revenue must review the information returns required
10.6under section 6041A of the Internal Revenue Code. The commissioner of revenue shall
10.7also review the submitted certification that is applicable to returns audited or investigated
10.8under section289A.35 .
10.9 Sec. 10. Minnesota Statutes 2010, section 181.723, subdivision 16, is amended to read:
10.10 Subd. 16. Data classified. Data in applicationsfor an independent contractor
10.11exemption certificate and any required documentation submitted to the commissioner
10.12under this section are private data on individuals or nonpublic data as defined in section
10.1313.02
. Data in exemption registration certificates issued by the commissioner are public
10.14data; except that registration information published on the department's Web site may be
10.15accessed for registration verification purposes only. Data that document a revocation
10.16or cancellation ofan exemption a certificate are public data. Upon request of the
10.17Department of Revenue or the Department of Employment and Economic Development,
10.18the commissioner may release to the requesting department data classified as private or
10.19nonpublic under this subdivision or investigative data that are not public under section
10.2013.39
that relate to the issuance or denial of applications or revocations of certificates.
10.21 Sec. 11. Minnesota Statutes 2010, section 289A.31, subdivision 5, is amended to read:
10.22 Subd. 5. Withholding tax, withholding from payments to out-of-state
10.23contractors, and withholding by partnerships and small business corporations. (a)
10.24Except as provided in paragraph (b), an employer or person withholding tax under section
10.25290.92
or
290.923, subdivision 2 , who fails to pay to or deposit with the commissioner a
10.26sum or sums required by those sections to be deducted, withheld, and paid, is personally
10.27and individually liable to the state for the sum or sums, and added penalties and interest,
10.28and is not liable to another person for that payment or payments. The sum or sums
10.29deducted and withheld under section290.92, subdivision 2a or 3, or
290.923, subdivision
10.302 , must be held as a special fund in trust for the state of Minnesota.
10.31(b) If the employer or person withholding tax under section290.92 or
290.923,
10.32subdivision 2 , fails to deduct and withhold the tax in violation of those sections, and later
10.33the taxes against which the tax may be credited are paid, the tax required to be deducted
10.34and withheld will not be collected from the employer. This does not, however, relieve the
11.1employer from liability for any penalties and interest otherwise applicable for failure to
11.2deduct and withhold. This paragraph does not apply to an employer subject to paragraph
11.3(g), or to a contractor required to withhold under section
290.92, subdivision 31
11.4(c) Liability for payment of withholding taxes includes a responsible person or entity
11.5described in the personal liability provisions of section270C.56 .
11.6(d) Liability for payment of withholding taxes includes a third-party lender or surety
11.7described in section270C.59 .
11.8(e) A partnership or S corporation required to withhold and remit tax under section
11.9290.92, subdivisions 4b and 4c
, is liable for payment of the tax to the commissioner, and a
11.10person having control of or responsibility for the withholding of the tax or the filing of
11.11returns due in connection with the tax is personally liable for the tax due.
11.12(f) A payor of sums required to be withheld under section290.9705, subdivision
11.131 , is liable to the state for the amount required to be deducted, and is not liable to an
11.14out-of-state contractor for the amount of the payment.
11.15(g) If an employer fails to withhold tax from the wages of an employee when
11.16required to do so under section290.92, subdivision 2a , by reason of treating such
11.17employee as not being an employee, then the liability for tax is equal to three percent of
11.18the wages paid to the employee. The liability for tax of an employee is not affected by
11.19the assessment or collection of tax under this paragraph. The employer is not entitled to
11.20recover from the employee any tax determined under this paragraph.
11.21EFFECTIVE DATE.This section is effective for payments made after June 30,
11.222012.
11.23 Sec. 12. Minnesota Statutes 2010, section 326B.081, subdivision 3, is amended to read:
11.24 Subd. 3. Applicable law. "Applicable law" means the provisions of sections
11.25181.723,327.31 to
327.36 , and this chapter, and all rules, orders, stipulation agreements,
11.26settlements, compliance agreements, licenses, registrations, certificates, and permits
11.27adopted, issued, or enforced by the department under sections181.723, 327.31 to
327.36 ,
11.28or this chapter.
11.29 Sec. 13. REPEALER.
11.30(a) Minnesota Statutes 2010, section 181.723, subdivision 17, is repealed effective
11.31May 15, 2011.
11.32(b) Minnesota Statutes 2010, section 181.723, subdivisions 6, 8, 9, 10, 11, 12, and
11.3314, and Minnesota Rules, parts 5202.0100; 5202.0110; 5202.0120; 5202.0130; 5202.0140;
11.345202.0150; and 5202.0160, are repealed July 1, 2012, except they shall remain in effect
12.1for the regulation of an individual holding an independent contractor exemption certificate
12.2issued before July 1, 2012, under Minnesota Statutes 2010, section 181.723, subdivision
12.35, until the exemption certificate expires, is revoked, or is canceled.
12.4(c) Minnesota Statutes 2010, section 290.92, subdivision 31, is repealed effective
12.5for payments made after June 30, 2012.
12.6 Sec. 14. EFFECTIVE DATE.
12.7Sections 1 to 10 and 12 are effective July 1, 2012, except that those sections do not
12.8apply to the regulation of an individual who holds an independent contractor exemption
12.9certificate issued before July 1, 2012, under Minnesota Statutes 2010, section 181.723,
12.10subdivision 5, until the exemption certificate expires, or is revoked or canceled.
1.3contractors; providing pilot project for contractor registration; providing for
1.4penalties;amending Minnesota Statutes 2010, sections 181.723, subdivisions
1.51, 3, 4, 7, 15, 16, by adding subdivisions; 289A.31, subdivision 5; 326B.081,
1.6subdivision 3; Minnesota Statutes 2011 Supplement, section 181.723, subdivision
1.75; repealing Minnesota Statutes 2010, sections 181.723, subdivisions 6, 8, 9,
1.810, 11, 12, 14, 17; 290.92, subdivision 31; Minnesota Rules, parts 5202.0100;
1.95202.0110; 5202.0120; 5202.0130; 5202.0140; 5202.0150; 5202.0160.
1.10BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
1.11 Section 1. Minnesota Statutes 2010, section 181.723, subdivision 1, is amended to read:
1.12 Subdivision 1. Definitions. The definitions in this subdivision apply to this section.
1.13 (a) "Person" means any individual, limited liability
1.14liability partnership, corporation, partnership, incorporated or unincorporated association,
1.15sole proprietorship, joint stock company, or any other legal or commercial entity.
1.16 (b) "Department" means the Department of Labor and Industry.
1.17 (c) "Commissioner" means the commissioner of labor and industry or a duly
1.18designated representative of the commissioner who is either an employee of the
1.19Department of Labor and Industry or person working under contract with the Department
1.20of Labor and Industry.
1.21 (d) "Individual" means a human being.
1.22 (e) "Day" means calendar day unless otherwise provided.
1.23 (f) "Knowingly" means knew or could have known with the exercise of reasonable
1.24diligence.
1.25 (g) "Document" or "documents" includes papers; books; records; memoranda; data;
1.26contracts; drawings; graphs; charts; photographs; digital, video, and audio recordings;
2.1records; accounts; files; statements; letters; e-mails; invoices; bills; notes; and calendars
2.2maintained in any form or manner.
2.3(h) "Business entity" means a person other than an individual or a sole proprietor.
2.4 Sec. 2. Minnesota Statutes 2010, section 181.723, subdivision 3, is amended to read:
2.5 Subd. 3. Employee-employer relationship. Except as provided in subdivision 4,
2.6for purposes of chapters 176, 177, 181A, 182, and 268, as of
2.7an individual who performs services for a person that are in the course of the person's
2.8trade, business, profession, or occupation is an employee of that person and that person
2.9is an employer of the individual.
2.10 Sec. 3. Minnesota Statutes 2010, section 181.723, subdivision 4, is amended to read:
2.11 Subd. 4. Independent contractor. (a) An individual is an independent contractor
2.12and not an employee of the person for whom the individual is performing services in the
2.13course of the person's trade, business, profession, or occupation only if
2.14
2.15
2.16
2.17
2.18
2.19
2.20Department of Labor and Industry, if required under subdivision 4a, and the individual:
2.21(1) maintains a separate business with the individual's own office, equipment,
2.22materials, and other facilities;
2.23(2)(i) holds or has applied for a federal employer identification number or (ii) has
2.24filed business or self-employment income tax returns with the federal Internal Revenue
2.25Service if the individual has performed services in the previous year;
2.26(3) is operating under contract to perform the specific services for the person
2.27for specific amounts of money and under which the individual controls the means of
2.28performing the services;
2.29(4) is incurring the main expenses related to the services that the individual is
2.30performing for the person under the contract;
2.31(5) is responsible for the satisfactory completion of the services that the individual
2.32has contracted to perform for the person and is liable for a failure to complete the services;
2.33(6) receives compensation from the person for the services performed under the
2.34contract on a commission or per-job or competitive bid basis and not on any other basis;
3.1(7) may realize a profit or suffer a loss under the contract to perform services for
3.2the person;
3.3(8) has continuing or recurring business liabilities or obligations; and
3.4(9) the success or failure of the individual's business depends on the relationship of
3.5business receipts to expenditures.
3.6(b) If an individual is an owner or partial owner of a business entity, the individual is
3.7an employee of the person for whom the individual is performing services in the course
3.8of the person's trade, business, profession, or occupation, and is not an employee of the
3.9business entity in which the individual has an ownership interest, unless:
3.10(1) the business entity meets the nine factors in paragraph (a);
3.11(2) invoices are submitted in the name of the business entity;
3.12(3) the business entity is registered with the secretary of state, if required; and
3.13(4) the business entity is registered with the Department of Labor and Industry,
3.14if required under subdivision 4a.
3.15 Sec. 4. Minnesota Statutes 2010, section 181.723, is amended by adding a subdivision
3.16to read:
3.17 Subd. 4a. Registration pilot project. (a) The commissioner shall implement a pilot
3.18project, effective July 1, 2012, for the registration of persons who perform public or
3.19private sector commercial or residential building construction or improvement services
3.20as described in subdivision 2. The purpose of the pilot project is to evaluate whether the
3.21information obtained through registration assists the Department of Labor and Industry,
3.22the Department of Employment and Economic Development, and the Department of
3.23Revenue to enforce laws related to misclassification of employees. The commissioner
3.24shall issue a report to the legislature no later than January 1, 2014, on recommendations
3.25for amendments to the registration program, including reasonable registration fees to be
3.26used to aid in enforcing misclassification laws. The commissioner must not charge a fee
3.27for registration under the pilot project, but may take the enforcement action specified in
3.28subdivision 8a. The pilot project shall expire on June 30, 2014, unless extended by the
3.29legislature.
3.30(b) Except as provided in paragraph (c), any person who performs construction
3.31services in the state on or after September 15, 2012, must register with the commissioner
3.32as provided in subdivision 5 before performing construction services for another person.
3.33The requirements for registration under this subdivision are not a substitute for, and do
3.34not relieve a person from complying with, any other law requiring that the person be
3.35licensed, registered, or certified.
4.1(c) The registration requirements in this subdivision do not apply to:
4.2(1) a person who, at the time the person is performing the construction services,
4.3holds a current license, certificate, or registration under chapter 299M or 326B;
4.4(2) a person who holds a current independent contractor exemption certificate
4.5issued under this section that is in effect on September 15, 2012, except that the person
4.6must register under this section no later than the date the exemption certificate expires, is
4.7revoked, or is canceled;
4.8(3) a person who has given a bond to the state under section 326B.197 or 326B.46;
4.9(4) an employee of the person performing the construction services, if the person
4.10was in compliance with laws related to employment of the individual at the time the
4.11construction services were performed;
4.12(5) an architect or professional engineer engaging in professional practice as defined
4.13in section 326.02, subdivisions 2 and 3;
4.14(6) a school district or technical college governed under chapter 136F; or
4.15(7) a person providing construction services on a volunteer basis, including but not
4.16limited to Habitat for Humanity and Builders Outreach Foundation, and their individual
4.17volunteers when engaged in activities on their behalf.
4.18 Sec. 5. Minnesota Statutes 2011 Supplement, section 181.723, subdivision 5, is
4.19amended to read:
4.20 Subd. 5. Registration application.
4.21
4.22must submit electronically, in the manner prescribed by the commissioner, a complete
4.23application
4.24(b) to (d).
4.25
4.26any individual who is registering as an individual or a sole proprietor, or who owns 25
4.27percent or more of a business entity being registered:
4.28 (1) the individual's full legal name and title at applicant's business;
4.29 (2) the individual's
4.30 (3) the
4.31applicant's business owned by the individual; and
4.32
4.33
4.34
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
5.10
5.11
5.12
5.13
5.14
5.15
5.16
5.17
5.18
5.19
5.20
5.21
5.22
5.23
5.24
5.25
5.26
5.27
5.28
5.29
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5.31
5.32
5.33
5.34
5.35
5.36
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
6.10
6.11
6.12
6.13
6.14
6.15
6.16
6.17
6.18
6.19
6.20
6.21
6.22
6.23
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6.28
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6.30
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6.33
6.34
6.35
6.36
7.1(c) A complete application must also include the following information:
7.2(1) the applicant's legal name; assumed name filed with the secretary of state, if any;
7.3designated business address; physical address; telephone number; and e-mail address;
7.4(2) the applicant's Minnesota tax identification number, if one is required or has
7.5been issued;
7.6(3) the applicant's federal employer identification number, if one is required or
7.7has been issued;
7.8(4) evidence of the active status of the applicant's business filings with the secretary
7.9of state, if one is required or has been issued;
7.10(5) whether the applicant has any employees at the time the application is filed;
7.11(6) the names of all other persons with an ownership interest in the business entity
7.12who are not identified in paragraph (b), and the percentage of the interest owned by each
7.13person, except that the names of shareholders with less than ten percent ownership in a
7.14publicly traded corporation need not be provided;
7.15(7) information documenting compliance with workers' compensation and
7.16unemployment insurance laws;
7.17(8) a certification that the person signing the application has: reviewed it; determined
7.18that the information provided is true and accurate; and determined that the person signing
7.19is authorized to sign and file the application as an agent of the applicant. The name of the
7.20person signing, entered on an electronic application, shall constitute a valid signature of
7.21the agent on behalf of the applicant; and
7.22(9) a signed authorization for the Department of Labor and Industry to verify the
7.23information provided on or with the application.
7.24(d) A registered person must notify the commissioner within 15 days after there is a
7.25change in any of the information on the application as approved. This notification must
7.26be provided electronically in the manner prescribed by the commissioner. However, if
7.27the business entity structure, legal form of the business entity, or business ownership has
7.28changed, the person must submit a new registration application and registration fee, if
7.29any, for the new business entity.
7.30(e) The registered person must remain registered while providing construction
7.31services for another person. The provisions of sections 326B.091 and 326B.094 to
7.32326B.097 apply to this section.
7.33 Sec. 6. Minnesota Statutes 2010, section 181.723, is amended by adding a subdivision
7.34to read:
8.1 Subd. 5a. Web site. (a) The commissioner shall develop and maintain a Web site
8.2on which applicants for registration can submit a registration application. The Web site
8.3shall be designed to receive and process registration applications and promptly issue
8.4registration certificates electronically to successful applicants.
8.5(b) The commissioner shall maintain the certificates of registration on the
8.6department's official public Web site, which shall include the following information:
8.7(1) the registered person's legal business name, including any assumed name, as
8.8filed with the secretary of state;
8.9(2) the person's business address designated on the application; and
8.10(3) the effective date of the registration and the expiration date.
8.11 Sec. 7. Minnesota Statutes 2010, section 181.723, subdivision 7, is amended to read:
8.12 Subd. 7. Prohibited activities. (a) The prohibited activities in this subdivision are
8.13in addition to those prohibited in sections 326B.081 to 326B.085.
8.14
8.15
8.16
8.17
8.18
8.19
8.20
8.21
8.22
8.23
8.24
8.25
8.26
8.27hold himself or herself out as an independent contractor unless the individual meets the
8.28requirements of subdivision 4.
8.29
8.30trade, business, occupation, or profession shall not:
8.31 (1) require an individual through coercion, misrepresentation, or fraudulent means to
8.32adopt independent contractor status or form a business entity;
8.33 (2) knowingly misrepresent
8.34an individual as an independent contractor
9.1
9.2
9.3 (3) contract with or perform construction services for another person without first
9.4being registered if required by subdivision 4a;
9.5(4)
9.6
9.7
9.8contract with or pay another person to perform construction services if the other person
9.9is not registered if required by subdivision 4a. All payments to an unregistered person
9.10for construction services on a single project site shall be considered a single violation. It
9.11is not a violation of this clause:
9.12(i) for a person to contract with or pay an unregistered person if the unregistered
9.13person was registered at the time the contract for construction services was entered into; or
9.14(ii) for a homeowner or business to contract with or pay an unregistered person if
9.15the homeowner or business is not in the trade, business, profession, or occupation of
9.16performing building construction or improvement services; or
9.17(5) be penalized for violations of this subdivision that are committed by another
9.18person. This clause applies only to violations of this paragraph.
9.19
9.20
9.21
9.22
9.23 Sec. 8. Minnesota Statutes 2010, section 181.723, is amended by adding a subdivision
9.24to read:
9.25 Subd. 8a. Enforcement; remedies; and penalties. Notwithstanding the maximum
9.26penalty amount in section 326B.082, subdivisions 7 and 12, the maximum penalty for
9.27failure to register is $2,000, but the commissioner shall forgive the penalty if the person
9.28registers within 30 days of the date of the penalty order.
9.29 Sec. 9. Minnesota Statutes 2010, section 181.723, subdivision 15, is amended to read:
9.30 Subd. 15. Notice to commissioner; review by commissioner of revenue. When
9.31the commissioner has reason to believe that
9.32
9.33
9.34violated subdivision 7, paragraph (b); or (c), clause (1) or (2), the commissioner must
10.1notify the commissioner of revenue and the commissioner of employment and economic
10.2development. Upon receipt of notification from the commissioner
10.3
10.4
10.5
10.6under section 6041A of the Internal Revenue Code. The commissioner of revenue shall
10.7also review the submitted certification that is applicable to returns audited or investigated
10.8under section
10.9 Sec. 10. Minnesota Statutes 2010, section 181.723, subdivision 16, is amended to read:
10.10 Subd. 16. Data classified. Data in applications
10.11
10.12under this section are private data on individuals or nonpublic data as defined in section
10.14data; except that registration information published on the department's Web site may be
10.15accessed for registration verification purposes only. Data that document a revocation
10.16or cancellation of
10.17Department of Revenue or the Department of Employment and Economic Development,
10.18the commissioner may release to the requesting department data classified as private or
10.19nonpublic under this subdivision or investigative data that are not public under section
10.21 Sec. 11. Minnesota Statutes 2010, section 289A.31, subdivision 5, is amended to read:
10.22 Subd. 5. Withholding tax, withholding from payments to out-of-state
10.23contractors, and withholding by partnerships and small business corporations. (a)
10.24Except as provided in paragraph (b), an employer or person withholding tax under section
10.26sum or sums required by those sections to be deducted, withheld, and paid, is personally
10.27and individually liable to the state for the sum or sums, and added penalties and interest,
10.28and is not liable to another person for that payment or payments. The sum or sums
10.29deducted and withheld under section
10.302
10.31(b) If the employer or person withholding tax under section
10.32subdivision 2
10.33the taxes against which the tax may be credited are paid, the tax required to be deducted
10.34and withheld will not be collected from the employer. This does not, however, relieve the
11.1employer from liability for any penalties and interest otherwise applicable for failure to
11.2deduct and withhold. This paragraph does not apply to an employer subject to paragraph
11.3(g)
11.4(c) Liability for payment of withholding taxes includes a responsible person or entity
11.5described in the personal liability provisions of section
11.6(d) Liability for payment of withholding taxes includes a third-party lender or surety
11.7described in section
11.8(e) A partnership or S corporation required to withhold and remit tax under section
11.10person having control of or responsibility for the withholding of the tax or the filing of
11.11returns due in connection with the tax is personally liable for the tax due.
11.12(f) A payor of sums required to be withheld under section
11.131
11.14out-of-state contractor for the amount of the payment.
11.15(g) If an employer fails to withhold tax from the wages of an employee when
11.16required to do so under section
11.17employee as not being an employee, then the liability for tax is equal to three percent of
11.18the wages paid to the employee. The liability for tax of an employee is not affected by
11.19the assessment or collection of tax under this paragraph. The employer is not entitled to
11.20recover from the employee any tax determined under this paragraph.
11.21EFFECTIVE DATE.This section is effective for payments made after June 30,
11.222012.
11.23 Sec. 12. Minnesota Statutes 2010, section 326B.081, subdivision 3, is amended to read:
11.24 Subd. 3. Applicable law. "Applicable law" means the provisions of sections
11.25181.723,
11.26settlements, compliance agreements, licenses, registrations, certificates, and permits
11.27adopted, issued, or enforced by the department under sections
11.28or this chapter.
11.29 Sec. 13. REPEALER.
11.30(a) Minnesota Statutes 2010, section 181.723, subdivision 17, is repealed effective
11.31May 15, 2011.
11.32(b) Minnesota Statutes 2010, section 181.723, subdivisions 6, 8, 9, 10, 11, 12, and
11.3314, and Minnesota Rules, parts 5202.0100; 5202.0110; 5202.0120; 5202.0130; 5202.0140;
11.345202.0150; and 5202.0160, are repealed July 1, 2012, except they shall remain in effect
12.1for the regulation of an individual holding an independent contractor exemption certificate
12.2issued before July 1, 2012, under Minnesota Statutes 2010, section 181.723, subdivision
12.35, until the exemption certificate expires, is revoked, or is canceled.
12.4(c) Minnesota Statutes 2010, section 290.92, subdivision 31, is repealed effective
12.5for payments made after June 30, 2012.
12.6 Sec. 14. EFFECTIVE DATE.
12.7Sections 1 to 10 and 12 are effective July 1, 2012, except that those sections do not
12.8apply to the regulation of an individual who holds an independent contractor exemption
12.9certificate issued before July 1, 2012, under Minnesota Statutes 2010, section 181.723,
12.10subdivision 5, until the exemption certificate expires, or is revoked or canceled.
