---
url: 'https://www.fmjlaw.com/be-aware-of-minnesotas-new-misclassification-of-construction-employees-law-minnesota-statute-section-181-723/'
title: 'Be Aware of Minnesota’s New Misclassification of Construction Employees Law – Minnesota Statute Section 181.723'
author:
  name: Adam
  url: 'https://www.fmjlaw.com/author/adam-brownfmjlaw-com/'
date: '2025-03-27T15:40:56+00:00'
modified: '2025-03-27T15:42:15+00:00'
type: post
summary: Minnesota has a new 14-Factor test for the construction and remodeling industry.
categories:
  - Article
  - Thought Leadership
tags:
  - construction
  - employee
  - independent contractor
published: true
---

# Be Aware of Minnesota’s New Misclassification of Construction Employees Law – Minnesota Statute Section 181.723

Every building construction or remodeling business must comply with Minnesota’s new 14-factor test for classifying workers in the construction industry as independent contractors as of March 1, 2025. This test is a part of Minn. Stat. § 181.723, which is a new statutory framework intended to address employer misclassification fraud in that industry.

## Scope

The new statute only applies to businesses providing or performing “building construction or improvement services.” That includes all public or private sector commercial or residential building construction or improvement services except for: “(1) the manufacture, supply, or sale of products, materials, or merchandise; (2) landscaping services for the maintenance or removal of existing plants, shrubs, trees, and other vegetation, whether or not the services are provided as part of a contract for the building construction or improvement services; and (3) all other landscaping services, unless the other landscaping services are provided as part of a contract for the building construction or improvement services.” Employers in other industries need not be concerned with the new law.

## The 14-Factor Test

By default, “an individual who provides or performs building construction or improvement 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.” Minn. Stat. § 181.723, subd. 3. In order to be classified as an independent contractor, an individual must meet all 14 factors laid out in Minn. Stat. § 181.723, subd. 4. If not, that individual will be classified as an employee. (Historically, whether one was properly classified as an independent contractor was determined by looking at a nine-factor test, but it was not necessary to meet each and every factor.) Here are relevant portions of the 14 factors, and the emphasis is added. The full text of the statute is available through the Minnesota Revisor of Statutes Office – [click here to view](https://www.revisor.mn.gov/statutes/cite/181.723).

Minn. Stat. § 181.723, subd. 4(a) states, in part, that:

An individual is an independent contractor and not an employee of the person for whom the individual is providing or performing services in the course of the person’s trade, business, profession, or occupation ***only ***if the individual is operating as a business entity that meets ***all ***of the following requirements at the time the services were provided or performed:

- was established and maintained separately from and independently of the person for whom the services were provided or performed;

- owns, rents, or leases equipment, tools, vehicles, materials, supplies, office space, or other facilities that are used by the business entity to provide or perform building construction or improvement services;

- provides or performs, or offers to provide or perform, the same or similar building construction or improvement services for multiple persons or the general public;

- is in compliance with all of the following:  
       (i) holds a federal employer identification number if required by federal law;  
       (ii) holds a Minnesota tax identification number if required by Minnesota law;  
       (iii) has received and retained 1099 forms for income received for building construction or improvement services provided or performed, if required by Minnesota or federal law;  
       (iv) has filed business or self-employment income tax returns, including estimated tax filings, with the federal Internal Revenue Service and the Department of Revenue, as the     business entity or as a self-employed individual reporting income earned, for providing or performing building construction or improvement services, if any, in the previous 12 months; **and**  
       (v) has completed and provided a W-9 federal income tax form to the person for whom the services were provided or performed if required by federal law;

- is in good standing as defined by section 5.26, if applicable;

- has a Minnesota unemployment insurance account if required by chapter 268;

- has obtained required workers’ compensation insurance coverage if required by chapter 176;

- holds current business licenses, registrations, and certifications if required by chapter 326B and sections 327.31 to 327.36 [relating to manufactured/modular homes];

- is operating under a written contract to provide or perform the specific services for the person that:  
 (i) is signed and dated by both an authorized representative of the business entity and of the person for whom the services are being provided or performed;  
 (ii) is fully executed no later than 30 days after the date work commences;  
 (iii) identifies the specific services to be provided or performed under the contract;  
 (iv) provides for compensation from the person for the services provided or performed under the contract on a commission or per-job or competitive bid basis and not on any other basis; **and**  
 (v) the requirements of item (ii) shall not apply to change orders;

- submits invoices and receives payments for completion of the specific services provided or performed under the written proposal, contract, or change order in the name of the business entity. Payments made in cash do not meet this requirement;

- the terms of the written proposal, contract, or change order provide the business entity control over the means of providing or performing the specific services, and the business entity in fact controls the provision or performance of the specific services;

- incurs the main expenses and costs related to providing or performing the specific services under the written proposal, contract, or change order;

- is responsible for the completion of the specific services to be provided or performed under the written proposal, contract, or change order and is responsible, as provided under the written proposal, contract, or change order, for failure to complete the specific services; and

- may realize additional profit or suffer a loss, if costs and expenses to provide or perform the specific services under the written proposal, contract, or change order are less than or greater than the compensation provided under the written proposal, contract, or change order.

## Additional Provisions

Minn. Stat. § 181.723, subd. 4(b) clarifies that any individual providing services for a business entity in the construction industry is presumed to be an employee, unless that individual meets all of the requirements in the 14-Factor test in subd. 4(a).

Subd. 4(b) also indicates that an individual providing or performing services for a subcontractor is an employee of the general contractor, unless that subcontractor meets all of the requirements of the 14-Factor test. The revised statute does provide, however, that no employer-employee relationship is created if:

*(1) there is an intervening business entity in the contractual chain between the [contractor] and the individual that meets the requirements” of the fourteen-point test; or (2) the contractor “establishes that an intervening business entity treats and classifies the individual as an employee. . . .*

These exceptions remove unlimited liability as parties move down the contractor chain. However, there is a very real possibility that an individual providing work for a subcontractor could be classified as an employee of an upstream contractor. In other words, if any subcontractor does not meet all of the requirements of the 14-Factor test, there can be an employee relationship assigned to one of the contractors upstream. And in that case, the upstream contractor would be held responsible for the proper payment, insurance, and withholdings of all employees of the misclassified downstream contractor. Ultimately, all of these other individuals down the chain could be considered employees of an upstream contractor. As such, it is incredibly important for all contractors to ensure that any downstream contractors comply with the new 14-Factor independent contractor classification test including, if possible, documentary proof from the downstream contractor.

## Penalties and Violations

Minn. Stat. § 181.723, subd. 7 lists a number of violations and outlines penalties involved with independent contractor misclassification. The violations are listed as:

- Falsely representing oneself as an independent contractor when they do not meet the 14-Factor test.

- Requiring an employee to register or agree to be classified as an independent contractor.

- Failing to classify an individual as an employee.

- Failing to report or disclose an individual as an employee.

- Requiring an employee to enter into an agreement that misclassifies the employee as an independent contractor.

- Requiring an employee to register as a construction contractor.

Businesses, contractors, or other entities or individuals can be liable for penalties of up to $10,000 for each individual violation. There can also be fines and penalties of up to $1,000 per day for delay or failure to cooperate with an investigation. In addition, owners, officers, or agents of a business may be held individually liable if they “knowingly or repeatedly engaged in any of the prohibited activities” set forth in the revised statute. In addition, a business or entity may be ordered to pay “the value of supplemental pay including minimum wage; overtime; shift differentials; vacation pay; sick pay; and other forms of paid time off; health insurance; life and disability insurance; retirement plans; saving plans and any other form of benefit; employer contributions to unemployment insurance; Social Security and Medicare and any costs and expenses incurred by the individual resulting from the person’s failure to classify, represent, or treat the individual as an employee.” Minn. Stat. § 181.723, subd. 7(g)(1).

## Takeaways

This new 14-Factor test creates a rather heavy burden for remodeling businesses and contractors. For example, will an upstream contractor be able to ensure that its subcontractors have filed taxes and kept up with all of the required licenses? The statute also lays out a number of requirements for contracts, work order, timelines, etc. While these may sound positive in theory, the new requirements change certain business practices and may be difficult to follow in practice.

There have been some legal challenges to Minn. Stat. § 181.723. For example, in Minn. Chapter of Associated Builders & Contractors, Inc. v. Blissenbach, two trade associations and a commercial construction company filed a motion in federal court to prevent enforcement of § 181.723, arguing that the 14-Factor test was unconstitutional and would cause irreparable harm. No. 25-550-JRT-JFD (D. Minn. 3/5/25). The court denied the motion, finding that the plaintiffs failed to show a likelihood of success on their arguments which included vagueness, excessive fines, National Labor Relations Act preemption, and procedural due process. The court also determined that the plaintiffs failed to show that their members faced irreparable harm.

So, for now, the new 14-Factor test is in place for independent contractor classification in the construction industry in Minnesota. Remodeling and construction businesses working with independent contractors need to act now to audit those relationships and make sure each independent contractor meets all of the requirements of the 14-Factor test and continues to meet those requirements at each point where the independent contractor is providing work and services for the business. This can be a complicated analysis. Please reach out to [John Ella](https://www.fmjlaw.com/professional/v-john-ella/), [Ryan Dreyer](https://www.fmjlaw.com/professional/ryan-r-dreyer/), and FMJ’s [HR & Employment Team](https://www.fmjlaw.com/practice-area/hr-employment/) for help with these issues.

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