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Employee Classification in Minnesota: How to Get it Done Right

Employee classification can be tricky. As many small businesses experiment with new employment models and more employees want flexibility and independence, it can make employee classification an uncertain space. But correctly classifying your employees is essential for any business in Minnesota. Misclassifying employees can result in significant legal and financial consequences, including penalties, back pay, and legal fees. Here are some steps you can take to ensure you get employee classification done correctly in the state of Minnesota.

Employee classification requires understanding the difference between employees and independent contractors

In Minnesota, an employee is a person who performs services for you in exchange for payment and is under your control. An independent contractor, on the other hand, is a person who provides services for you but is not under your control. This means they can take work from a variety of sources and set their own fees. Independent contractors are typically paid by the project or job, and they use their own tools and equipment.

Determine if your workers are employees or independent contractors

To properly classify your workers, you need to consider the level of control you have over their work. If you have the right to direct and control the work, then the worker is likely an employee. If the worker has control over how and when the work is performed, then they may be an independent contractor. Many factors can be considered in making this determination, and it’s best to consult with an attorney or accountant if you’re unsure.

According to the Minnesota Department of Labor and Industry, “Misclassifying employees as independent contractors is a violation of Minnesota law.” Misclassification can result in civil and criminal penalties, back pay, and damages.

Follow Minnesota employment laws

Once you’ve determined that a worker is an employee, you’ll need to follow Minnesota employment laws, including minimum wage, overtime, and workers’ compensation laws. It’s important to keep accurate records of hours worked, pay rates, and other employment-related information.

The Minnesota Department of Labor and Industry provides resources and information to help employers understand and comply with Minnesota employment laws. Employers can access information on minimum wage, overtime, workers’ compensation, and other employment-related topics on the department’s website.

File required forms and pay taxes

As an employer in Minnesota, you must file certain forms with the state and federal government, including payroll tax forms, unemployment insurance forms, and workers’ compensation forms. You’ll also need to pay taxes, such as Social Security and Medicare taxes, and state and federal unemployment taxes.

The Minnesota Department of Revenue provides resources and information to help employers understand and comply with Minnesota tax laws. Employers can access information on filing requirements, tax rates, and other tax-related topics on the department’s website.

Seek legal guidance on employee classification if needed

If you’re unsure about how to classify your workers or how to comply with Minnesota employment laws, it’s important to seek legal guidance. An attorney or accountant with experience in employment law can help ensure that you’re following all applicable laws and regulations and can help you avoid costly legal issues down the road.

Working with Haworth & Company

At Haworth & Company we understand the subtle differences that can separate direct employees from contractors. We help to ensure that our clients employee classification is correct so that they can comply with tax and other regulations. Contact us today to discuss how our accounting, tax, and business consulting services can help your business.


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