The Other Shoe Drops: An Update on DOLI Enforcement of Contractor Registration Requirements
In a move of interest to residential or commercial contractors working in Minnesota, the Minnesota Department of Labor & Industry (DOLI) recently began enforcing a 2012 requirement that all unlicensed contractors register with the Construction Contractor Registration Program and subcontract work only to licensed or registered contractors.
In 2012, the Minnesota legislature passed a law establishing the Construction Contractor Registration Program requiring any contractor not already licensed with the state to register with DOLI in order to work on projects in Minnesota.1 While plumbers, electricians, and other tradesmen already had to be licensed, the new registration requirement was intended to stop the practice of skirting tax and workers compensation laws by labeling individuals as independent contractors when they should be treated as employees.2
Although adopted in 2012, the registration law was not being widely enforced against contractors that failed to register or companies that hired unregistered contractors in violation of the statute. DOLI did not appear to be actively citing or fining contractors that were failing to register or hiring unregistered contractors.
Now that's changed. As of early 2017, DOLI's Enforcement Services Unit has stepped up investigations into non-compliant contractors. While the law requires that the first violation result is nothing more than a citation/warning, additional hiring of unregistered contractors can lead to penalties of up to $10,000 per violation.3 As a result, all contractors should understand what the law requires and when penalties can be assessed.
First, contractors and subcontractors that are not otherwise employees of another company are required to register. Registration is free on DOLI's website. Registrations are valid through December 31 of each odd-numbered year, after which time they need to be renewed. A contractor that fails to register can be subject to a violation and a penalty of up to $2,000.4 The specific requirements for who must be licensed, who can just be registered, and who doesn't need to be licensed or registered at all vary by trade. Here's a rough breakdown:
- License required: electricians, plumbers, roofers, and residential building contractors5
- Registration required: mechanical contractors, single-skill specialty contractors, and non-licensed contractors not exempted by statute (this includes most general contractors)6
- No Registration required: the excepted classes listed in Minn. Stat 326B.701, including individual employees, design professionals, and residential contractors earning less than $15,000/year7
Second, general contractors should learn whether the subcontractors they hire are properly licensed or registered before allowing them to begin work, as failing to do so can lead to the assessment of fines/penalties for hiring unregistered contractors. The simplest way to do this is to type the subcontractor's name into the search on the DOLI website. If the subcontractor is not listed as either being registered or having a license, the hiring contractor risks being cited if the unlicensed/unregistered company begins or continues work. This requirement applies to any "person who provides construction services in the course of the person's trade…" but does not apply to owners of residential or commercial property that are not otherwise involved with "performing building construction or improvement services."8
Finally, companies that try to avoid workers' compensation, insurance or statutory employment requirements by improperly categorizing employees as "independent contractors" can also be subject to a violation under this enforcement scheme. DOLI can assess a penalty against a contractor for misclassification if DOLI finds that an individual or subcontractor working on the contractor's behalf is not: (1) registered with DOLI, (2) registered with the secretary of state, (3) set up to receive invoices and make payments in its own name, or (4) otherwise acting in a way that shows the person is truly an independent contractor under Minnesota law.9 The new enforcement scheme not only requires contractors to register—it also tightens regulations on hiring in order to prevent contractors from sidestepping employee benefit laws.
The most important thing to know is that the state of Minnesota is now aggressively enforcing regulations that require contractors to register in order to work on construction projects in Minnesota. By registering with DOLI, ensuring that subcontractors (not just individuals) have registered, and appropriately identifying individuals as employees or independent contractors, prudent business owners can avoid facing penalties under a long dormant statute that has now sprung to life.
1. See Minn. Stat. § 326B.701 (Rev. 2016).
2. This is a complicated distinction that is based on a nine-factor test laid out by statute. Minn. Stat. §181.723 (4) (Rev. 2016).
3. Minn. Stat. § 326B.701(6)(b) (forgiving the first violation) and § 326B.082(7) (setting forth the maximum penalty).
4. Minn. Stat. § 326B.701(6)(a) (setting forth the penalty, but noting that the fine will be forgiven if registration occurs within 30 days).
5. See Minn. Stat. § 326B.43 (plumbers); § 326B.33 (electricians); § 326B.81 (roofers); § 326B.805 (residential building).
6. See Minn. Stat. § 326B.701.
8. Minn. Stat. § 326B.701(5)(b)(2)(ii)
9. Minn. Stat. §181.723 (7).