1st Engrossment - 87th Legislature (2011 - 2012) Posted on 04/18/2012 05:13pm
A bill for an act
relating to labor and industry; clarifying employee classification of independent
contractors; providing pilot project for contractor registration; providing for
penalties; amending Minnesota Statutes 2010, sections 181.723, subdivisions
1, 3, 4, 7, 15, 16, by adding subdivisions; 289A.31, subdivision 5; 326B.081,
subdivision 3; Minnesota Statutes 2011 Supplement, section 181.723, subdivision
5; repealing Minnesota Statutes 2010, sections 181.723, subdivisions 6, 8, 9,
10, 11, 12, 14, 17; 290.92, subdivision 31; Minnesota Rules, parts 5202.0100;
5202.0110; 5202.0120; 5202.0130; 5202.0140; 5202.0150; 5202.0160.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
Minnesota Statutes 2010, section 181.723, subdivision 1, is amended to read:
The definitions in this subdivision apply to this section.
(a) "Person" means any individual, limited liability deleted text begin corporationdeleted text end new text begin company, limited
liability partnershipnew text end , corporation, partnership, incorporated or unincorporated association,
sole proprietorship, joint stock company, or any other legal or commercial entity.
(b) "Department" means the Department of Labor and Industry.
(c) "Commissioner" means the commissioner of labor and industry or a duly
designated representative of the commissioner who is either an employee of the
Department of Labor and Industry or person working under contract with the Department
of Labor and Industry.
(d) "Individual" means a human being.
(e) "Day" means calendar day unless otherwise provided.
(f) "Knowingly" means knew or could have known with the exercise of reasonable
diligence.
(g) "Document" or "documents" includes papers; books; records; memoranda; data;
contracts; drawings; graphs; charts; photographs; digital, video, and audio recordings;
records; accounts; files; statements; letters; e-mails; invoices; bills; notes; and calendars
maintained in any form or manner.
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(h) "Business entity" means a person other than an individual or a sole proprietor.
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Minnesota Statutes 2010, section 181.723, subdivision 3, is amended to read:
Except as provided in subdivision 4,
for purposes of chapters 176, 177, 181A, 182, and 268, as of deleted text begin January 1, 2009deleted text end new text begin July 1, 2012new text end ,
an individual who performs services for a person that are in the course of the person's
trade, business, profession, or occupation is an employee of that person and that person
is an employer of the individual.
Minnesota Statutes 2010, section 181.723, subdivision 4, is amended to read:
new text begin (a)new text end An individual is an independent contractor
and not an employee of the person for whom the individual is performing services in the
course of the person's trade, business, profession, or occupation only if deleted text begin (1) the individual
holds a current independent contractor exemption certificate issued by the commissioner;
and (2) the individual is performing services for the person under the independent
contractor exemption certificate as provided in subdivision 6. The requirements in clauses
(1) and (2) must be met in order to qualify as an independent contractor and not as an
employee of the person for whom the individual is performing services in the course of
the person's trade, business, profession, or occupation.deleted text end new text begin the individual is registered with the
Department of Labor and Industry, if required under subdivision 4a, and the individual:
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(1) maintains a separate business with the individual's own office, equipment,
materials, and other facilities;
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(2)(i) holds or has applied for a federal employer identification number or (ii) has
filed business or self-employment income tax returns with the federal Internal Revenue
Service if the individual has performed services in the previous year;
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(3) is operating under contract to perform the specific services for the person
for specific amounts of money and under which the individual controls the means of
performing the services;
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(4) is incurring the main expenses related to the services that the individual is
performing for the person under the contract;
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(5) is responsible for the satisfactory completion of the services that the individual
has contracted to perform for the person and is liable for a failure to complete the services;
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(6) receives compensation from the person for the services performed under the
contract on a commission or per-job or competitive bid basis and not on any other basis;
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(7) may realize a profit or suffer a loss under the contract to perform services for
the person;
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(8) has continuing or recurring business liabilities or obligations; and
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(9) the success or failure of the individual's business depends on the relationship of
business receipts to expenditures.
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(b) If an individual is an owner or partial owner of a business entity, the individual is
an employee of the person for whom the individual is performing services in the course
of the person's trade, business, profession, or occupation, and is not an employee of the
business entity in which the individual has an ownership interest, unless:
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(1) the business entity meets the nine factors in paragraph (a);
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(2) invoices are submitted in the name of the business entity;
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(3) the business entity is registered with the secretary of state, if required; and
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(4) the business entity is registered with the Department of Labor and Industry,
if required under subdivision 4a.
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Minnesota Statutes 2010, section 181.723, is amended by adding a subdivision
to read:
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(a) The commissioner shall implement a pilot
project, effective July 1, 2012, for the registration of persons who perform public or
private sector commercial or residential building construction or improvement services
as described in subdivision 2. The purpose of the pilot project is to evaluate whether the
information obtained through registration assists the Department of Labor and Industry,
the Department of Employment and Economic Development, and the Department of
Revenue to enforce laws related to misclassification of employees. The commissioner
shall issue a report to the legislature no later than January 1, 2014, on recommendations
for amendments to the registration program, including reasonable registration fees to be
used to aid in enforcing misclassification laws. The commissioner must not charge a fee
for registration under the pilot project, but may take the enforcement action specified in
subdivision 8a. The pilot project shall expire on June 30, 2014, unless extended by the
legislature.
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(b) Except as provided in paragraph (c), any person who performs construction
services in the state on or after September 15, 2012, must register with the commissioner
as provided in subdivision 5 before performing construction services for another person.
The requirements for registration under this subdivision are not a substitute for, and do
not relieve a person from complying with, any other law requiring that the person be
licensed, registered, or certified.
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(c) The registration requirements in this subdivision do not apply to:
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(1) a person who, at the time the person is performing the construction services,
holds a current license, certificate, or registration under chapter 299M or 326B;
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(2) a person who holds a current independent contractor exemption certificate
issued under this section that is in effect on September 15, 2012, except that the person
must register under this section no later than the date the exemption certificate expires, is
revoked, or is canceled;
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(3) a person who has given a bond to the state under section 326B.197 or 326B.46;
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(4) an employee of the person performing the construction services, if the person
was in compliance with laws related to employment of the individual at the time the
construction services were performed;
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(5) an architect or professional engineer engaging in professional practice as defined
in section 326.02, subdivisions 2 and 3;
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(6) a school district or technical college governed under chapter 136F; or
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(7) a person providing construction services on a volunteer basis, including but not
limited to Habitat for Humanity and Builders Outreach Foundation, and their individual
volunteers when engaged in activities on their behalf.
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Minnesota Statutes 2011 Supplement, section 181.723, subdivision 5, is
amended to read:
deleted text begin To obtain an independent contractor exemption
certificate, the individual must submitdeleted text end new text begin (a) Persons required to register under subdivision 4a
must submit electronicallynew text end , in the manner prescribed by the commissioner, a complete
application deleted text begin and the certificate fee required under subdivision 14deleted text end new text begin according to paragraphs
(b) to (d)new text end .
deleted text begin (a)deleted text end new text begin (b)new text end A complete application must include all of the following informationnew text begin about
any individual who is registering as an individual or a sole proprietor, or who owns 25
percent or more of a business entity being registerednew text end :
(1) the individual's fullnew text begin legalnew text end namenew text begin and title at applicant's businessnew text end ;
(2) the individual's deleted text begin residencedeleted text end new text begin businessnew text end address and telephone number;
(3) the deleted text begin individual's business name, address, and telephone number;deleted text end new text begin percentage of the
applicant's business owned by the individual; and
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(4) the services for which the individual is seeking an independent contractor
exemption certificate;
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deleted text begin (5)deleted text end new text begin (4)new text end the individual's Social Security numberdeleted text begin ;deleted text end new text begin .
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(6) the individual's or the individual's business federal employer identification
number, if a number has been issued to the individual or the individual's business;
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(7) any information or documentation that the commissioner requires by rule that
will assist the department in determining whether to grant or deny the individual's
application; and
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(8) the individual's sworn statement that the individual meets all of the following
conditions:
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(i) maintains a separate business with the individual's own office, equipment,
materials, and other facilities;
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(ii) 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;
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(iii) operates under contracts to perform specific services for specific amounts of
money and under which the individual controls the means of performing the services;
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(iv) incurs the main expenses related to the service that the individual performs
under contract;
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(v) is responsible for the satisfactory completion of services that the individual
contracts to perform and is liable for a failure to complete the service;
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(vi) receives compensation for service performed under a contract on a commission
or per-job or competitive bid basis and not on any other basis;
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(vii) may realize a profit or suffer a loss under contracts to perform service;
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(viii) has continuing or recurring business liabilities or obligations; and
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(ix) the success or failure of the individual's business depends on the relationship of
business receipts to expenditures.
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(b) Individuals who are applying for or renewing a residential building contractor or
residential remodeler license under sections 326B.197, 326B.802, 326B.805, 326B.81,
326B.815, 326B.821 to 326B.86, 326B.87 to 326B.885, and 327B.041, and any rules
promulgated pursuant thereto, may simultaneously apply for or renew an independent
contractor exemption certificate. The commissioner shall create an application form
that allows for the simultaneous application for both a residential building contractor
or residential remodeler license and an independent contractor exemption certificate.
If individuals simultaneously apply for or renew a residential building contractor or
residential remodeler license and an independent contractor exemption certificate using
the form created by the commissioner, individuals shall only be required to provide, in
addition to the information required by section 326B.83 and rules promulgated pursuant
thereto, the sworn statement required by paragraph (a), clause (8), and any additional
information required by this subdivision that is not also required by section 326B.83 and
any rules promulgated thereto. An independent contractor exemption certificate that is in
effect before March 1, 2009, shall remain in effect until March 1, 2013, unless revoked by
the commissioner or canceled by the individual.
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(c) Within 30 days of receiving a complete application and the certificate fee, the
commissioner must either grant or deny the application. The commissioner may deny
an application for an independent contractor exemption certificate if the individual has
not submitted a complete application and certificate fee or if the individual does not
meet all of the conditions for holding the independent contractor exemption certificate.
The commissioner may revoke an independent contractor exemption certificate if the
commissioner determines that the individual no longer meets all of the conditions for
holding the independent contractor exemption certificate, commits any of the actions
set out in subdivision 7, or fails to cooperate with a department investigation into the
continued validity of the individual's certificate. Once issued, an independent contractor
exemption certificate remains in effect for four years unless:
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(1) revoked by the commissioner; or
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(2) canceled by the individual.
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(d) If the department denies an individual's original or renewal application for
an independent contractor exemption certificate or revokes an independent contractor
exemption certificate, the commissioner shall issue to the individual an order denying or
revoking the certificate. The commissioner may issue an administrative penalty order to
an individual or person who commits any of the actions set out in subdivision 7. The
commissioner may file and enforce the unpaid portion of a penalty as a judgment in
district court without further notice or additional proceedings.
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(e) An individual or person to whom the commissioner issues an order under
paragraph (d) shall have 30 days after service of the order to request a hearing. The
request for hearing must be in writing and must be served on or faxed to the commissioner
at the address or facsimile number specified in the order by the 30th day after service of
the order. If the individual does not request a hearing or if the individual's request for a
hearing is not served on or faxed to the commissioner by the 30th day after service of the
order, the order shall become a final order of the commissioner and will not be subject to
review by any court or agency. The date on which a request for hearing is served by mail
shall be the postmark date on the envelope in which the request for hearing is mailed. If
the individual serves or faxes a timely request for hearing, the hearing shall be a contested
case hearing and shall be held in accordance with chapter 14.
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(c) A complete application must also include the following information:
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(1) the applicant's legal name; assumed name filed with the secretary of state, if any;
designated business address; physical address; telephone number; and e-mail address;
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(2) the applicant's Minnesota tax identification number, if one is required or has
been issued;
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(3) the applicant's federal employer identification number, if one is required or
has been issued;
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(4) evidence of the active status of the applicant's business filings with the secretary
of state, if one is required or has been issued;
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(5) whether the applicant has any employees at the time the application is filed;
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(6) the names of all other persons with an ownership interest in the business entity
who are not identified in paragraph (b), and the percentage of the interest owned by each
person, except that the names of shareholders with less than ten percent ownership in a
publicly traded corporation need not be provided;
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(7) information documenting compliance with workers' compensation and
unemployment insurance laws;
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(8) a certification that the person signing the application has: reviewed it; determined
that the information provided is true and accurate; and determined that the person signing
is authorized to sign and file the application as an agent of the applicant. The name of the
person signing, entered on an electronic application, shall constitute a valid signature of
the agent on behalf of the applicant; and
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(9) a signed authorization for the Department of Labor and Industry to verify the
information provided on or with the application.
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(d) A registered person must notify the commissioner within 15 days after there is a
change in any of the information on the application as approved. This notification must
be provided electronically in the manner prescribed by the commissioner. However, if
the business entity structure, legal form of the business entity, or business ownership has
changed, the person must submit a new registration application and registration fee, if
any, for the new business entity.
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(e) The registered person must remain registered while providing construction
services for another person. The provisions of sections 326B.091 and 326B.094 to
326B.097 apply to this section.
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Minnesota Statutes 2010, section 181.723, is amended by adding a subdivision
to read:
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(a) The commissioner shall develop and maintain a Web site
on which applicants for registration can submit a registration application. The Web site
shall be designed to receive and process registration applications and promptly issue
registration certificates electronically to successful applicants.
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(b) The commissioner shall maintain the certificates of registration on the
department's official public Web site, which shall include the following information:
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(1) the registered person's legal business name, including any assumed name, as
filed with the secretary of state;
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(2) the person's business address designated on the application; and
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(3) the effective date of the registration and the expiration date.
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Minnesota Statutes 2010, section 181.723, subdivision 7, is amended to read:
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(a) The prohibited activities in this subdivision are
in addition to those prohibited in sections 326B.081 to 326B.085.
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deleted text begin (a)deleted text end new text begin (b)new text end An individual shall notdeleted text begin :
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(1) perform work as an independent contractor who meets the qualifications under
subdivision 6 without first obtaining from the department an independent contractor
exemption certificate;
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(2) perform work as an independent contractor when the department has denied or
revoked the individual's independent contractor exemption certificate;
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(3) transfer to another individual or allow another individual to use the individual's
independent contractor exemption certificate;
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(4) alter or falsify an independent contractor exemption certificate;
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(5) misrepresent the individual's status as an independent contractor; or
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(6) make a false material statement, representation, or certification; omit material
information; or alter, conceal, or fail to file a document required by this section or any
rule promulgated by the commissioner under rulemaking authority set out in this section.
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hold himself or herself out as an independent contractor unless the individual meets the
requirements of subdivision 4.
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deleted text begin (b)deleted text end new text begin (c)new text end A personnew text begin who provides construction services in the course of the person's
trade, business, occupation, or professionnew text end shall not:
(1) require an individual through coercion, misrepresentation, or fraudulent means to
adopt independent contractor statusnew text begin or form a business entitynew text end ;
(2) knowingly misrepresent deleted text begin that an individual who has not been issueddeleted text end new text begin or misclassify
an individual asnew text end an independent contractor deleted text begin exemption certificate or is not performing
services for the person under an independent contractor exemption certificate is an
independent contractordeleted text end ; deleted text begin or
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(3)new text begin contract with or perform construction services for another person without first
being registered if required by subdivision 4a;
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new text begin (4)new text end deleted text begin make a false material statement, representation, or certification; omit material
information; or alter, conceal, or fail to file a document required by this section or any
rule promulgated by the commissioner under rulemaking authority set out in this section.deleted text end new text begin
contract with or pay another person to perform construction services if the other person
is not registered if required by subdivision 4a. All payments to an unregistered person
for construction services on a single project site shall be considered a single violation. It
is not a violation of this clause:
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(i) for a person to contract with or pay an unregistered person if the unregistered
person was registered at the time the contract for construction services was entered into; or
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(ii) for a homeowner or business to contract with or pay an unregistered person if
the homeowner or business is not in the trade, business, profession, or occupation of
performing building construction or improvement services; or
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(5) be penalized for violations of this subdivision that are committed by another
person. This clause applies only to violations of this paragraph.
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(c) A person for whom an individual is performing services must obtain a copy of the
individual's independent contractor exemption certificate before services may commence.
A copy of the independent contractor exemption certificate must be retained for five years
from the date of receipt by the person for whom an individual is performing services.
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Minnesota Statutes 2010, section 181.723, is amended by adding a subdivision
to read:
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Notwithstanding the maximum
penalty amount in section 326B.082, subdivisions 7 and 12, the maximum penalty for
failure to register is $2,000, but the commissioner shall forgive the penalty if the person
registers within 30 days of the date of the penalty order.
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Minnesota Statutes 2010, section 181.723, subdivision 15, is amended to read:
When
the commissioner has reason to believe that deleted text begin an individual who holds a certificate has
failed to maintain all the conditions required by subdivision 6 or is not performing
services for a person under the independent contractor exemption certificatedeleted text end new text begin a person has
violated subdivision 7, paragraph (b); or (c), clause (1) or (2)new text end , the commissioner must
notify the commissioner of revenue and the commissioner of employment and economic
development. Upon receipt of notification from the commissioner deleted text begin that an individual who
holds a certificate has failed to maintain all the conditions required by subdivision 6
or is not performing services for a person under the independent contractor exemption
certificatedeleted text end , the commissioner of revenue must review the information returns required
under section 6041A of the Internal Revenue Code. The commissioner of revenue shall
also review the submitted certification that is applicable to returns audited or investigated
under section 289A.35.
Minnesota Statutes 2010, section 181.723, subdivision 16, is amended to read:
Data in applications deleted text begin for an independent contractor
exemption certificatedeleted text end and any required documentation submitted to the commissionernew text begin
under this sectionnew text end are private data on individualsnew text begin or nonpublic datanew text end as defined in section
13.02. Data in deleted text begin exemptiondeleted text end new text begin registrationnew text end certificates issued by the commissioner are public
datanew text begin ; except that registration information published on the department's Web site may be
accessed for registration verification purposes onlynew text end . Data that document a revocation
or cancellation of deleted text begin an exemptiondeleted text end new text begin anew text end certificate are public data. Upon request of the
Department of Revenue ornew text begin thenew text end Department of Employment and Economic Development,
the commissioner may release to the requesting department data classified as privatenew text begin or
nonpublicnew text end under this subdivision or investigative data that are not public under section
13.39 that relate to the issuance or denial of applications or revocations of certificates.
Minnesota Statutes 2010, section 289A.31, subdivision 5, is amended to read:
(a)
Except as provided in paragraph (b), an employer or person withholding tax under section
290.92 or 290.923, subdivision 2, who fails to pay to or deposit with the commissioner a
sum or sums required by those sections to be deducted, withheld, and paid, is personally
and individually liable to the state for the sum or sums, and added penalties and interest,
and is not liable to another person for that payment or payments. The sum or sums
deducted and withheld under section 290.92, subdivision 2a or 3, or 290.923, subdivision
2, must be held as a special fund in trust for the state of Minnesota.
(b) If the employer or person withholding tax under section 290.92 or 290.923,
subdivision 2, fails to deduct and withhold the tax in violation of those sections, and later
the taxes against which the tax may be credited are paid, the tax required to be deducted
and withheld will not be collected from the employer. This does not, however, relieve the
employer from liability for any penalties and interest otherwise applicable for failure to
deduct and withhold. This paragraph does not apply to an employer subject to paragraph
(g)deleted text begin , or to a contractor required to withhold under section 290.92, subdivision 31deleted text end .
(c) Liability for payment of withholding taxes includes a responsible person or entity
described in the personal liability provisions of section 270C.56.
(d) Liability for payment of withholding taxes includes a third-party lender or surety
described in section 270C.59.
(e) A partnership or S corporation required to withhold and remit tax under section
290.92, subdivisions 4b and 4c, is liable for payment of the tax to the commissioner, and a
person having control of or responsibility for the withholding of the tax or the filing of
returns due in connection with the tax is personally liable for the tax due.
(f) A payor of sums required to be withheld under section 290.9705, subdivision
1, is liable to the state for the amount required to be deducted, and is not liable to an
out-of-state contractor for the amount of the payment.
(g) If an employer fails to withhold tax from the wages of an employee when
required to do so under section 290.92, subdivision 2a, by reason of treating such
employee as not being an employee, then the liability for tax is equal to three percent of
the wages paid to the employee. The liability for tax of an employee is not affected by
the assessment or collection of tax under this paragraph. The employer is not entitled to
recover from the employee any tax determined under this paragraph.
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This section is effective for payments made after June 30,
2012.
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Minnesota Statutes 2010, section 326B.081, subdivision 3, is amended to read:
"Applicable law" means the provisions of sections
new text begin 181.723, new text end 327.31 to 327.36new text begin ,new text end and this chapter, and all rules, orders, stipulation agreements,
settlements, compliance agreements, licenses, registrations, certificates, and permits
adopted, issued, or enforced by the department under sections new text begin 181.723, new text end 327.31 to 327.36new text begin ,new text end
or this chapter.
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(a)
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Minnesota Statutes 2010, section 181.723, subdivision 17,
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is repealed effective
May 15, 2011.
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(b)
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Minnesota Statutes 2010, section 181.723, subdivisions 6, 8, 9, 10, 11, 12, and
14,
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and
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Minnesota Rules, parts 5202.0100; 5202.0110; 5202.0120; 5202.0130; 5202.0140;
5202.0150; and 5202.0160,
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are repealed July 1, 2012, except they shall remain in effect
for the regulation of an individual holding an independent contractor exemption certificate
issued before July 1, 2012, under Minnesota Statutes 2010, section 181.723, subdivision
5, until the exemption certificate expires, is revoked, or is canceled.
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(c)
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Minnesota Statutes 2010, section 290.92, subdivision 31,
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is repealed effective
for payments made after June 30, 2012.
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Sections 1 to 10 and 12 are effective July 1, 2012, except that those sections do not
apply to the regulation of an individual who holds an independent contractor exemption
certificate issued before July 1, 2012, under Minnesota Statutes 2010, section 181.723,
subdivision 5, until the exemption certificate expires, or is revoked or canceled.
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