Employees vs. Independent Contractor’s in Minnesota

 

Employees:

  • Employees are under the control of their employer. The employer determines the details of what the employee will do and how the work will be completed within the employers’ regular course of business.

 

Independent Contractor’s:

  • Are workers whose employers only have the right to control or direct the result of the work, but not what will be done or how the work will be completed.

 

 

Degree of Control vs. Independence:

  • The determining factor that distinguishes an employee from an independent contractor is the degree of control and independence, which falls into three categories:

 

  1. Behavioral:
    • Does the employer direct or control how the work is being done? Behavioral control may occur through training, instruction, or other means.
  2. Financial:
    • Does the employer direct or control the financial and business aspects such as how the worker is paid, whether expenses are reimbursed, or provide supplies or tools?
  3. Relationship Between the Worker and Employer:
    • How is the relationship perceived by the worker and the employer? Is there a written contract or employee-type benefits such as insurance, pension plans, or vacation pay?

 

  • All the relevant factors must be considered when determining if someone is an employee or independent contractor because some factors may indicate that a worker is an employee, while others may indicate that a worker is an independent contractor.
  • For more information

 

Consequences of Misclassification:

  • Potential Investigation by the Minnesota Attorney General’s Office:
    • Employers must correctly determine whether their workers are employees or independent contractors not only to ensure that the correct tax forms are filed, but also because independent contractor misclassification is wage theft, and the Minnesota Attorney General’s Office has broad authority to investigate violations and complaints of worker misclassification.
    • For more information.

 

  • Potential Investigation by the IRS:
    • If an employee is misclassified as an independent contractor and the employer has no reasonable basis for doing so, the employer may be liable for employment taxes and investigated by the IRS.
    • For more information.

 

Employer Relief:

  • If an employer has a reasonable basis for not treating a worker as an employee, they may qualify for relief from having to pay employment taxes for that worker.
  • For more information.

 

Taxes:

  • Employees:
    1. Form W-2
      • Generally, income taxes must be withheld, Social Security must be withheld and paid, Medicare taxes, and unemployment taxes on wages must be paid to employees.
      • Form W-2 usually applies, but check here to assess the applicability of other employment tax forms.
      • For more information.

 

  • Independent Contractor’s:
    1. Form W-9
    2. Form 1099-NEC
      • Generally, no taxes need to be withheld or paid on payments made to independent contractors.
      • For more information.

 

 

Still Unsure?:

  • The IRS will help an employer or worker determine their worker status by completing and submitting the Form SS-8, which can be found here.
  • A copy of the completed Form SS-8 and a copy of the IRS’s written determination should both be sent to the Minnesota Department of Revenue.
  • For more information

 

 

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