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Fighting employee misclassification (new law)

Published (5/25/2012)
By Nick Busse
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Unscrupulous employers sometimes label their workers “independent contractors” to avoid paying things like unemployment insurance, workers’ compensation and employment taxes. In doing so, they deny those workers the benefits and protections afforded to regular employees.

Supporters of a new law hope it will help put an end to the practice. Effective July 1, 2012, the law will clarify who is considered an “independent contractor” and require the Department of Labor and Industry to implement a pilot project to ensure that all construction workers are properly registered with the state.

Under the provisions, anyone performing construction services in the state who is not already licensed or registered under another section of law will have to register under the new program. This program will replace the old Independent Contractor Exemption Certificate. There will be no registration fee, but penalties may apply to those who fail to register.

A 2007 report by the Office of the Legislative Auditor found that one out of every seven employers had misclassified one or more workers in 2005. The report stated that it was likely a conservative estimate, because it didn’t account for employers who pay cash “under the table” or who don’t register with the unemployment system. The report also found that the practice of misclassification was highest in industries like real estate and construction, particularly the areas of roofing, drywall and residential remodeling.

The law also includes a number of technical and housekeeping changes requested by the Department of Labor and Industry. These take effect Aug. 1, 2012.

Rep. Tim Sanders (R-Blaine) and Sen. John Pederson (R-St. Cloud) are the sponsors.

HF2093/ SF1653*/CH295

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