Minnesota's 14-factor construction worker test
How does Minnesota decide if a construction helper is an employee?
An employee until the test says otherwise
For building construction or improvement work, Minnesota law starts from the other end: the person is your employee unless their own business clears every requirement.
The statute states it directly. An individual who performs building construction or improvement services in the course of your trade, business or occupation is your employee, for the purposes of workers' compensation, labor standards, unemployment insurance and licensing alike. The exception has to be earned, not assumed.
The current version took effect March 1, 2025, and grew the test from nine factors to fourteen. If you last looked at this law before then, you are working from a shorter list than the one now in force.
Minnesota Statutes 181.723 makes an individual performing building construction or improvement services in your trade your employee, for chapters 176, 177, 181, 268 and 326B alike. — Minnesota Revisor of Statutes, retrieved 2026-09-29
March 1, 2025The Department of Labor and Industry states that for construction services performed on or after March 1, 2025, a worker is an employee unless a business entity meets all 14 factors. — Minnesota Department of Labor and Industry, retrieved 2026-09-29
The business must qualify, not the person
The statute's word is "business entity," and DLI's gloss on it matters: an individual human being does not count as one.
A sole proprietor, LLC, corporation or partnership can be the business entity. What fails is a helper who simply works under their own name with nothing behind it, no accounts, no filings, no separate existence. That person is an employee even if you both call them a contractor.
The entity has to be real enough to leave a trail: a federal employer identification number where one is required, a Minnesota tax ID where one is required, retained 1099s for construction income where required, and business or self-employment tax returns filed, including estimated filings, for the previous twelve months.
DLI explains that the law defines a business entity as a legal or commercial entity, not an individual human being, so the worker needs a real business to qualify. — Minnesota Department of Labor and Industry, retrieved 2026-09-29
12 monthsMinnesota Statutes 181.723, subd. 4, requires the entity to hold required tax ID numbers, have retained 1099s for construction income, and have filed tax returns for the previous 12 months. — Minnesota Revisor of Statutes, retrieved 2026-09-29
All fourteen requirements at a glance
The test is all-or-nothing. Missing one requirement makes the worker an employee, with no balancing to rescue the other thirteen.
The table compresses the statute's own list. Two rows do most of the damage in practice: the written contract and the payment basis. A helper paid by the hour cannot meet the compensation requirement, because the statute requires payment on a commission, per-job or competitive-bid basis and not on any other basis.
| Requirement | What it means in practice |
|---|---|
| Separate and independent business | The entity is established and maintained separately from the hiring person |
| Own equipment | Owns, rents or leases the tools, vehicles, materials or facilities used |
| Serves multiple customers | Performs or offers the same services to multiple persons or the public |
| Tax compliance block | FEIN and Minnesota tax ID where required, retained 1099s, tax returns filed |
| Good standing | Good standing under section 5.26 where applicable |
| Unemployment insurance account | Has a Minnesota UI account if required by chapter 268 |
| Workers' compensation coverage | Has required coverage if required by chapter 176 |
| Trade licenses | Holds required licenses and registrations under chapter 326B |
| Written contract | Signed and dated by both sides, executed within 30 days of starting |
| Compensation basis | Paid on commission, per-job or competitive-bid basis only |
| Invoices in the entity's name | Submits invoices and is paid in the entity's name, never cash |
| Control over the work | The entity controls the means of performing the services |
| Carries the main costs | Incurs the main expenses and costs of the services |
| Profit and loss | Can realize additional profit or suffer a loss on the job |
30 daysMinnesota Statutes 181.723, subdivision 4, requires the written contract to be signed and dated by both sides and fully executed no later than 30 days after the date work commences. — Minnesota Revisor of Statutes, retrieved 2026-09-29
Minnesota Statutes 181.723, subd. 4, requires payment on a commission, per-job or competitive-bid basis, and requires invoices and payments in the entity's own name. — Minnesota Revisor of Statutes, retrieved 2026-09-29
Where electricians and remodelers meet the test
The test covers "building construction or improvement services," which reaches further than new builds. Electrical work, remodeling and the trades that improve an existing structure all sit inside it.
That gives the electrical trade a double wall. DLI licenses electrical contractors and electricians, and state law separately requires anyone performing building construction or improvement services to register before performing them. A registered, licensed contractor can still be your employee under the classification law, because the license tests the trade skill and the fourteen requirements test the business relationship.
The classification statute's list of chapters includes 326B, the licensing chapter, so an unlicensed or unregistered helper fails a requirement even where every other one holds. Licensing and classification are two different questions asked about the same person.
The Minnesota Department of Labor and Industry states that it licenses electrical contractors, electricians, satellite system installers and sign contractors. — Minnesota Department of Labor and Industry, retrieved 2026-09-29
Minnesota Statutes 326B.701 requires anyone performing building construction or improvement services in Minnesota to register with the commissioner before performing them. — Minnesota Revisor of Statutes, retrieved 2026-09-29
What the test costs when a crew fails it
The penalty paragraph does not scale gently. Compensatory damages come first: the value of the minimum wage, overtime, paid time off, employer contributions to unemployment insurance, and Social Security and Medicare the worker missed, plus the worker's costs.
On top of that, up to $10,000 for each individual the person failed to classify as an employee, and up to $10,000 for each violation of the prohibited-activities rules, where each misclassification or mislabeling document is its own violation. Obstructing the investigation adds $1,000 per day.
The full arithmetic, including the workers' compensation penalty that runs on its own clock, is on the penalties page. The cheaper order is on the classification guide, before the first check is written.
up to $10,000 per workerMinnesota Statutes 181.723, subd. 7, allows compensatory damages plus up to $10,000 for each misclassified individual and up to $10,000 for each violation. — Minnesota Revisor of Statutes, retrieved 2026-09-29
Rebuild the file every time the deal changes
The fourteen requirements are measured twice in the statute: at the moment the individual was engaged and at the time the services were provided. A business that qualified in spring can fail in fall if it stopped filing returns or let coverage lapse.
The same record-keeping duty carries the three-year clock. Keep the contract, the invoices, the proof of the entity's filings and coverage, and the evidence for each requirement, ready to hand over on demand.
When the crew's shape changes, more helpers, longer jobs, tools you supply, run the test again rather than assuming the old answer survives. The documents to keep are listed on the checklist page, and the day someone asks for them is covered by the review guide.
3 yearsMinnesota Statutes 181.723, subd. 7, requires three years of classification documentation, measured at engagement and at performance, producible on demand. — Minnesota Revisor of Statutes, retrieved 2026-09-29
Questions
Does hiring a helper through their LLC avoid the test?
Not by itself. The second-tier rule makes an individual performing services as or for a business entity your employee unless that business entity itself meets all fourteen requirements. The entity has to qualify, and employees the entity brings along count as yours in the chain.
What if the helper prefers to be paid as a contractor?
The worker's preference does not move the test, and the statute prohibits asking an employee to sign a document that misclassifies them. Each agreement or completed document that misclassifies an employee is a separate violation, so a signed "contractor agreement" can add penalties rather than remove them.
Are landscaping crews inside this test?
Usually not. The statute excludes landscaping services unless they are provided as part of a contract for building construction or improvement services. The line the exclusion draws is covered on the landscaping crews page.
Did the requirements really change in 2025?
Yes. Services performed through February 28, 2025 were judged against nine factors. Services performed on or after March 1, 2025 are judged against the fourteen requirements. A classification memo written before the amendment is one factor list out of date.