One area of employment law that often trips up Minnesota companies is whether a worker should be considered an “employee” or an “independent contractor.” In general, independent contractors are considered to “be their own bosses.” In other words, because employers have less control over them, independent contractors are not subject to employment laws relating to wages, workplace health and safety, and withholding taxes. But the line between an independent contractor and an employee can be hard to draw, and federal and state agencies have been stepping up enforcement of the laws prohibiting misclassification of workers as independent contractors.
One mistake we frequently see is that when an agency, such as the U.S. Department of Labor or the Minnesota Department of Revenue, initiates an inquiry or enforcement action based on potential misclassification of a worker as an independent contractor, the company tries to respond informally, without involving their employment attorney. This can lead to unnecessary difficulties. For example, as the company tries to explain to the investigator why the worker is an independent contractor, the company may inadvertently provide information that the investigator can use against the company. Or, the company may not understand the impact of the investigation—misclassification can result in significant taxes, fines, or other liabilities. And, the company may not know the best practices for how to resolve the dispute. The last thing the company needs is for the result of one agency’s investigation to spur other agencies into undertaking their own investigation. Briggs and Morgan, P.A. has experience working with the Minnesota Department of Revenue and other relevant agencies to conclusively resolve misclassification inquiries.
Usually, the agency looks at a variety of factors to determine whether it believes the classification is correct. A company’s honest belief or good faith intent regarding classification of its workers as independent contractors is generally irrelevant, which is why so many companies may face liability for misclassifications. Instead, the agency will look at certain factors regarding the relationship between the worker and company. Another factor often working against the company is that the agency has an interest in finding an employee-employer relationship, so the scales may often tip in that direction when there is uncertainty.
Takeaway: When an employer receives notice of an investigation relating to misclassification of a worker as an independent contractor, it should not try to respond on its own—that can often make the situation worse. Instead, the employer should contact its employment law counsel right away so that a response strategy can be developed.
Authored by: Andrew Carlson and Kristin Emmons
