Skip to comments.Independent Contractor Exemption Certificate
Posted on 02/12/2009 6:34:07 AM PST by PeterPrinciple
State law requires individuals (not corporations, LLCs or partnerships) who work as independent contractors in the building construction industry to obtain from the Department of Labor and Industry an Independent Contractor Exemption Certificate (ICEC). For purposes of the state workers compensation, unemployment insurance, wage and hour, occupational safety and health laws, and state and federal tax withholding, individuals doing residential and commercial construction work without an ICEC will be considered employees of the contractor for whom they are working.
These businesses are characterized as contracting, performing work and receiving compensation from another contractor. The ICEC is only required for independent contractor sole proprietorships who subcontract.
Businesses that are registered as another business entity with the Minnesota Secretary of State do not qualify for the ICEC. This includes corporations, LLCs and partnerships. Also, the ICEC does not apply to construction sales, many types of landscaping (see Minn. Statutes 181.723, sub. 2) construction design, manufacturing, cleanup, deliveries or maintenance.
To obtain an ICEC, individuals must complete and submit an application, fees and supporting documents that establish they meet the conditions required to operate as an independent contractor. Fees to apply for and renew an ICEC are nonrefundable. To operate as independent contractors, individuals must be able to meet the conditions set out in the laws nine-factor test.
An ICEC permits individuals to work as independent contractors. Certificate holders, however, may work as either independent contractors or as employees. Whether a certificate holder is working as an employee or an independent contractor will depend on the conditions of the particular work relationship. To be an independent contractor, in addition to having an ICEC, the conditions of the work relationship must also meet the nine-factor test.
For details about the Independent Contractor Exemption Certificate program and requirements, view the following fact sheet, brochure and slide show, or visit the FAQ page.
Fact Sheet Español Hmoob Russkiy
Brochure Español Hmoob Russkiy
Slide Show PowerPoint PDF
Enforcement Contractors who employ individuals who do not have an ICEC will face civil penalties if they do not provide workers' compensation and unemployment insurance to these individuals, and do not properly withhold state and federal taxes from their employees' pay.
An individual, who holds an ICEC, is an independent contractor if he or she:
maintains a separate business with the individual’s own office, equipment, materials, and other facilities;
holds or has applied for a federal employer identification number or has filed business or self employment income tax returns with the federal Internal Revenue Service if the person has performed services in the previous year for which the individual is seeking the independent contractor exemption certificate;
operates under contracts to perform specific services for specific amounts of money and under which the individual controls the means of performing the services;
incurs the main expenses related to the service that the individual performs under contract;
is responsible for the satisfactory completion of services that the individual contracts to perform and is liable for a failure to complete the service;
receives compensation for service performed under a contract on a commission or per-job or competitive bid basis and not on any other basis;
may realize a profit or suffer a loss under cCoontracts to perform service;
has continuing or recurring business liabilities or obligations;
the success or failure of the individual’s business depends on the relationship of business receipts to expenditures.
In my part of the country, less than scrupulous construction contractors will hire illegal aliens, claiming them to be "independent" contractors (for whom no unemployment, socialist security, withholding tax, etc. is paid) allowing them to undercut contractors who play by the rules.
Make sure DAY LABOR SITES are brought up every time anything like this is proposed or enforced.
Just to keep things focused properly.
This is nothing new. It has been going on for some time. I personally know someone in the department that enforces it and did business with a company that got busted for it. He is now out of busines..
Let’s say you are a construction business and you don’t want to pay for unemployment, federal withholding, ss and workers comp insurance. So you pay your guys a straight hourly wage and then send them a 1099 at the end of the year and call them independent contractors. Some time later one of these guys gets laid off from a real job so they file for unemployment. They get turned down because they show no income in the previous three quarters. They get mad and say they worked, as an employee, for ABCD Construction for three years.
They still are ineligible for unemployment because they cannot prove they received wages nor did they pay Minnesota taxes on any wages. Both the contractor and employee are in trouble.
Next.the State opens an investigation into ABCD Construction. They want their unemployment taxes. They give the contractors name to the State withholding department as they want their cut. This contractor also gets reported to the IRS and the workers comp carrier. So he is facing four audits and they can go back years. The debt cannot be removed through bankruptcy so he is out of business. I have seen it.
Some of us contractors follow the rules and pay our taxes so I’m glad to see these guys getting busted for being tax cheats. I am tired of paying higher taxes to make up for deadbeats.
I think Mexicans are exempt from this law.
There are just too many, and if they all filed there would be a shortage of registration froms.
The scenario you describe IS employment, at first glance.
Contracting is based on a bid/accept relationship, providing one’s own tools etc. Some autonomy as re: setting own work hours while accomplishing the agreed goals is typical and the lack thereof is a yellow flag to auditors. Many call people contractors who in fact are employees.
...which is an entirely different matter than the gubmint messing with the relationship between those two gainfully active, ‘consenting’ adults.
“...which is an entirely different matter than the gubmint messing with the relationship between those two gainfully active, consenting adults”
200 years ago, people agreed between themselves on the price and terms to do a job and the work got done. Whether it was as employment or contract was strictly between the two private citizens....
Which relates to modern times in what way?
Are you saying any company can stop paying unemployment tax, workers comp and other taxes on all their employees?
Is it an option?
Of course not. Just noting how simple it used to be and how it is done legally now.
“Fees to apply for and renew an ICEC are nonrefundable.”
It’s a money grab. When it comes to politics.....
Follow the Money.
Fees to apply for and renew an ICEC are nonrefundable.
I think Mexicans are exempt from this law.
These types of laws have been around since 1935 when unemployment became a federal law. This law states basically that if an employer treats workers as independent contractors they need to verify two things -
1. That they have filed the certificate
2. That the relationship is one of a true contractor.
This law however doesn’t have one important ingredient - who makes the determination as to whether they meet the criteria or not.
Conservative folks aught to be conflicted about such a law.
On one hand we believe that everyone should pay their fair share. Those of us who do not own a business do not have a choice as to whether taxes will be deducted from our paychecks/retirement. They take it and we never see it again.
Therefore these “independent contractors” better have a legitimate business and be paying self employment tax or be reported as employees. Simple as that - you can’t be a little bit contractor anymore than you can be a little bit pregnant.
The tighter the economy gets the more employers risk fines/penalties by reclassifying their employees as independent contractors just to stay in business. They talk it up to their workers by saying they will pay them more per hour - which is true but at the end of the year the worker finds out that he actually was paid less than he earned before after taxes. Typically they don’t know they owe self employment tax and do not plan for it. They get fines and penalties for not paying estimated taxes and end up owing the IRS money.
However the other side of the issue Workers ask to be reclassified as independent contractors to avoid the IRS and other agencies from knowing that there is income until much later. The employer only reports payments > 600.00. Therefore if clever enough they get around paying child support, liens, back taxes and student loans.
The thing we are seeing more and more is that Illegal aliens get a Taxpayer ID for income tax purposes because they can’t work legally in the US but the IRS doesn’t care who pays income tax, with this number they get liability insurance, a Business name and start a business. They would even register with Minnesota.
They get around having to show that they are legally here to work and go on their merry way.
All in all - Unemployment is a Forced Insurance. Employers+
There is controversy about independent contractors and the various obligations of the company using the services. It involves how and who will pay the state and federal employment and income taxes. It involves liability for injury to the contractor or injuries by the contractor at the work place.
I work as an independent contractor serving several very large organizations who like to contract with old retired guys. The preference is for the contractor to be corporation rather than an individual. Once becoming a corporation, most of the problems disappear. That seems part of the intent of the law in question.
In my view, those who want to be independent contractors should become corporations. It solves lots of problems with the customer and provides benefits normal to corporate being.