In 2008, Minnesota lawmakers enacted a law that required independent construction contractors to obtain Independent Contractor Exemption Certificates. See Minn. Stat. § 181.723 (2008). The intended purposes of this law were to distinguish between legitimate small businesses and independent contractors and to provide revenue to the state in the form of a 2 percent withholding tax from companies that hired independent contractors. These purposes, however, were rarely served, as many independent contractors simply registered themselves as LLCs, which made the law inapplicable to them.

Minnesota lawmakers recently replaced the Independent Contractor Exemption Certificate program with a new registration process for construction contractors. See Minn. Stat. § 181.723 (2012). The new registration system took effect on July 1, 2012, and requires all residential and commercial construction contractors to register with the Minnesota Department of Labor and Industry by September 15, 2012, unless they: (1) have a current license, certificate, or registration issued by the Department of Labor and Industry; (2) have a current independent contractor exemption certificate; (3) are an employee of a business performing construction services; (4) are exempt from licensing under Minn. Stat. § 326B.805, subd. 6(5); or (5) are excluded from the registration requirements under Minn. Stat. § 181.723, subd. 4a. Also, if a contractor performs construction work for which a license, certification, or other registration is required under Minn. Stat. Chp. 326B, the contractor must apply for the required license and may not register with the Department of Labor and Industry as an independent contractor.

Independent contractors who are required to register and fail to do so may face enforcement penalties, and there are potentially significant penalties for general contractors who employ unregistered subcontractors, misclassify workers, or coerce others to form a business entity. Registration is free and can be done online through the website for the Minnesota Department of Labor and Industry (www.dli.mn.gov/register). Registration information will be maintained online for easy verification and can be found at https://secure.doli.state.mn.us/lookup/licensing.aspx by selecting “Business,”typing in a portion of the contractor’s name, and then clicking “Search.”

The new registration process is intended to simplify the registration process and, more importantly, curtail the practice engaged in by some construction companies of classifying their employees as independent contractors to avoid having to pay amounts required to be paid to employees such as overtime, unemployment benefits, and workers’ compensation. The new registration system is set up as a two-year pilot program, and time will tell whether it actually assists with the enforcement of laws related to the misclassification of employees in the construction industry.