However, different laws apply different tests to determine whether a worker is an employee or an independent contractor: • The IRS uses a right‑to‑control test that considers behavioral control, financial control, and the relationship of the parties. • Many employment statutes, including the FLSA, use an “ economic dependence ” or “ economic realities ” test, which often produces more employee‑favorable outcomes. Under the FLSA’s very broad definition of “employ” (“to suffer or permit to work”), the U.S. Department of Labor (DOL) has stated that most workers are employees. For wage‑and‑hour purposes, the DOL looks at factors such as: 1. Whether the work is an integral part of the employer’s business. 2. Whether the worker’s managerial skill affects their opportunity for profit or loss. 3. The relative investment of the worker compared to the employer. 4. Whether the work requires specialized skill and business initiative. 5. The permanence or duration of the relationship. 6. The nature and degree of the employer’s control over the work. If these factors show that the worker is economically dependent on the business, the worker is likely an employee, even if some control factors suggest otherwise. Certain facts are not determinative: • A contract labeling someone an “independent contractor” does not control if the actual working relationship indicates employment. • The fact that the worker has incorporated or is licensed by a government agency does not by itself establish contractor status. • The Supreme Court has held that employee status is not determined solely by the method or timing of pay. The DOL has reported increasing misclassification of employees as independent contractors. To address this, the DOL has entered into cooperative enforcement agreements with the IRS and the State of Minnesota. When misclassification is found, agencies can share information, increasing the likelihood of multiple audits and penalties. Independent contractors in the construction industry Effective March 1, 2025, Minnesota replaced its former nine‑factor test with a new 14‑factor test for determining independent contractor status in the construction industry. Under this law, an individual providing building construction or improvement services is an independent contractor— and not an employee of the person for whom the services are performed—only if the individual is operating as a business entity that meets all of the following requirements at the time the services are provided: 1. The business entity is established and maintained separately from, and independently of, the person for whom services are provided.
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