In Minnesota construction, your subcontractor is an employee unless all 14 boxes are checked

By David J.S. Madgett

Minnesota attorney, license no. 390494 · Published August 7, 2026

If you are starting a construction or building-improvement business in Minnesota, this is the statute to read before you write your first subcontractor check.

Most classification tests balance factors. This one does not. Minn. Stat. § 181.723 starts from the opposite end:

Except as provided in subdivision 4, for purposes of chapters 176, 177, 181, 181A, 182, 268, and 326B, an individual who provides or performs building construction or improvement services for a person that are in the course of the person’s trade, business, profession, or occupation is an employee of that person.

The default is employee. The chapters listed cover workers’ compensation, wages, employment, child labor, safety, unemployment insurance, and contractor licensing — which is to say, all of it.

The fourteen conditions

To be treated as an independent contractor instead, the business entity must satisfy all fourteen of the following. Not most. All.

1. Established and maintained separately from the hiring person.
2. Owns or rents the equipment, tools, vehicles, materials, supplies, and office space.
3. Provides similar services to multiple persons or the general public.
4. Complies with tax and reporting requirements — federal EIN, Minnesota tax ID, 1099s, business tax returns, W-9.
5. Is in good standing.
6. Has a Minnesota unemployment insurance account, if required.
7. Has obtained required workers’ compensation insurance.
8. Holds required business licenses and certifications.
9. Has a written contract, signed within 30 days, identifying the services and specifying compensation on a commission or per-job basis.
10. Submits invoices and receives payment in the business name — cash payments do not satisfy this.
11. Controls the means and methods of providing the services.
12. Incurs the main expenses and costs.
13. Bears responsibility for completion and for failure to complete.
14. May realize a profit or suffer a loss based on cost differences.

Which ones actually fail

In practice a small builder rarely trips on the philosophical elements — control, profit and loss, responsibility for completion. Those are usually fine. It is the paperwork elements that fail, and they fail quietly:

• Number 9. A handshake and a phone call is the industry norm and it is a failure. The contract must be written, signed within 30 days, and specify per-job or commission compensation.
• Number 10. Paying a crew member in cash is expressly insufficient. So is a check made out to a person rather than their business.
• Numbers 6 and 7. No UI account, no workers’ compensation policy — and the sub does not have one because he does not think he needs one.
• Number 3. The “subcontractor” who works only for you is not providing services to multiple persons or the public. If you are someone’s only customer, that element is a problem no contract fixes.

Any single one of those, and the statute treats the person as your employee, retroactively, for wage law, workers’ compensation, and unemployment insurance alike.

What it costs

The statute provides for compensatory damages including minimum wage, overtime, benefits, and insurance contributions, plus:

• up to $10,000 per misclassified individual;
• up to $10,000 per violation; and
• $1,000 per day for obstructing an investigation.

Per individual. A crew of six that you have been paying as subs for two years is not a rounding error.

What to do

• Assume employee and work backwards. That is how the statute is written, so it is how your budgeting should work.
• Paper every sub before work starts — written, signed, per-job compensation, within 30 days.
• Collect the certificates. Workers’ compensation and UI account confirmation, in your file, before the first invoice.
• Never pay cash, and never pay an individual rather than their entity.
• Look hard at anyone who works only for you. That relationship is very difficult to defend as independent regardless of what the contract says.

The statute was amended in 2024. If you are relying on advice or a template from before that, it is worth re-checking against the current text — and if you have a crew you have been treating as subs, that is a conversation to have with a lawyer before someone else raises it for you.