Minnesota cracks down on misclassification of employees as independent contractors

Minnesota is cracking down on businesses who are paying employees less than the minimum wage by misclassifying them as independent contractors. A new law combating this type of fraud went into effect in July but some industries have continued to cut corners.

Minneapolis City Council Chair Jason Chavez shared at a recent public meeting he visited a construction site and saw clear violations.

"It was predominantly people of color and immigrants who were being paid below minimum wage," Chavez said. "And then I went to a construction site where it was union, and people were being paid triple the amount than that undocumented worker. And it was just inhumane."

DFL Representative Emma Greenman helped pass the l aws during the last legislative session which regulate companies, and she says there is still a lot more work to do.

"Corporations are trying to make a buck by skirting and not complying with laws by cheating workers," Greenman claims. "We are going to be working on that problem for a long time."

As many as 20% of Minnesota employers misclassify at least one employee according to state data, and no industry has been impacted by this more than the construction business with nearly a quarter of Minnesota's construction workers being paid off the books.

Commissioner at the Minnesota Department of Labor and Industry Nicole Blissenbach says the law change will allow them to catch those who are continuing to cheat the system.

"It strengthened much of the consequences for employers who violate the law," Blissenbach said. "Prior to some of those enhanced consequences, there were great incentives to violate the law. You could save a lot of money by misclassifying a worker."

She says misclassification in the construction industry alone costs the state upwards of $136 million a year in lost tax revenue. The new laws created a partnership between the Departments of Labor and Industry, Revenue, Commerce, Economic Development and the Attorney General to stop this practice.

Greenman says while they will be working on regulating all industries, but for now construction businesses will be a main target.

"There are layers and layers and layers of contractors and subcontractors," she explains. "And what really matters is that we're holding everybody in that chain responsible."

More regulation specific to construction sites will go into effect  March 1, 2025.