Staying compliant with Minnesota labor laws is a cornerstone of responsible business ownership. While you have other matters set, you might want to consider assessing your employees. Misclassifying them can result in heavy financial penalties that can significantly threaten your company’s finances.
With the Minnesota Department of Labor and Industry (DLI) watching, consider starting your assessment now. Understanding laws about employee misclassification is key to avoiding future complications.
What is employee misclassification?
Employee misclassification refers to the act of labeling employees as independent contractors to avoid paying benefits, taxes and insurance. Under the eyes of the law, this unlawful act occurs when an employer:
- Intentionally misclassifies an individual as a contractor when they are legally an employee.
- Fails to report or treat an employee for tax, labor or insurance purposes.
- Requests or requires an employee to sign an agreement or document that misclassifies them.
Generally, an individual’s employment status depends on the right to control. If you control how, when and where the work is done, a person is likely an employee, regardless of what their contract says.
What happens if you misclassify employees?
If the DLI finds that you are misclassifying employees, you can face these consequences:
- You must reimburse the worker for the full value of missed benefits and wages.
- You face a fine of up to $10,000 for each misclassified worker and an additional penalty of up to $10,000 for each violation of prohibited acts.
- Owners, officers or agents can be personally liable for debts and penalties if they knowingly or repeatedly commit misclassification.
- Liability follows the business even if it changes names or ownership.
Misclassification constitutes a form of wage theft. By mislabeling workers, you shift the burden of taxes and insurance onto the worker or the state, gaining an unfair competitive advantage over law-abiding businesses.
Taking action to protect your business
Safeguarding your business requires a proactive approach. Here are a few recommendations you can use:
- Conduct regular audits.
- Analyze each employee’s control and independence.
- Establish a proper paper trail.
If you are unsure how to proceed, seeking legal advice can be a valuable resource. A business law attorney can review your employment agreements and provide guidance.