Update on Contractor Registration

Q & A With Department of Labor & Industry's Charlie Durenberger

For the first time since its creation, registrations through the Minnesota Department of Labor & Industry’s (DLI) Contractor Registration Program expire on Dec. 31, 2017.

The Contractor Registration Program was created by the legislature to assist DLI in its investigation of worker misclassification (treating employees as independent contractors). Contractors involved in the construction of physical improvements of the home who do not have a valid contractor license, exemption from DLI or were excluded when the law was created, must register with DLI.

Hiring unregistered contractors is a violation of law and can result in fines. By law, an unregistered “subcontractor” is presumed to be an employee of any contractor that hires them. If the hiring contractor can prove that the relationship between them and the subcontractor meets DLI’s nine requirements, then they are an independent contractor.

Q: With registration expiring, what steps do currently registered contractors need to take?

A: Registered contractors who have not yet renewed their registration should do so as soon as possible, as all registrations expire Dec. 31, 2017. The registration renewal process is very similar to the initial registration process in that it’s free and done completely online at: secure.doli.state.mn.us/license/conregrenew. Questions about the registration or renewal process should be directed to DLI.register@state.mn.us or (651) 284-5074.

Q: For general contractors, what do they need to do to ensure they’re using registered contractors when the new year begins?

A: General contractors should go on the DLI website and use the License Lookup tool on the home page (dli.mn.gov) to verify that their subcontractors are registered and that their registration is in good standing through Dec. 31, 2019. When looking up a subcontractor, it’s most helpful to have the sub’s registration number, but if you only have the sub’s name, typing in as little as possible will make it more likely that the right name will show up in the results of the lookup. There’s no need to use a wildcard when looking up a sub’s registration.

Q: Aside from verifying registration, what steps should general contractors take when hiring subs?

A: Most importantly, a general contractor should be confident that they understand the difference between an employee and an independent contractor. The reason we have a registration program is to help DLI and other state agencies regulate the classification of workers in the construction industry. When an employee is treated as an independent contractor, that is considered worker misclassification. Worker misclassification is a significant problem in the construction industry.

The primary issue that a general needs to look at is whether their subcontractors meet all nine factors of the nine-factor test that has been in state law for decades. If a subcontractor fails to meet all nine factors, he or she is deemed to be an employee of the hiring contractor, even if the worker operates under a business entity and has their own workers’ compensation and liability insurance.

Paying workers on an hourly basis is one of the most common forms of worker misclassification. Information on the nine-factor test and other issues relating to the proper classification of workers can be found on DLI’s website at dli.mn.gov.

Generals should also make sure that their subs’ business entities are up to date with the Minnesota Secretary of State, that they use written contracts or accept written invoices from their subs, and that payments are made to the subs’ business entities, not the individual business owners.

Subs that have no employees of their own are not required by state law to carry workers’ compensation or liability insurance, but most general contractors’ insurance carriers will insist that the general make sure that they collect insurance certificates for workers’ comp and liability from all its subs.

Q: What do general contractors need to do when hiring subs?

A: It’s difficult to gauge whether the misclassification of workers has been reduced by DLI’s enforcement activity, but our investigators have spent the majority of their efforts in educating contractors that they encounter in their investigations. Our focus has and continues to be education rather than punishment. That said, we have suspended many contractor registrations for failure to cooperate with our investigations. These suspensions also carry monetary penalties, usually in the neighborhood of $5,000.

We’ve also found that most general contractors are classifying their subs correctly. Misclassification occurs most often when we get down to the lower tier subs (subs of subs). When we identify misclassification, it’s usually at the level of the individual or company that pays the workers who perform the actual construction work, most frequently in drywall, floor covering, painting and roofing.