Are there different types of employees?

Business operation in Minnesota depends, in part, on the status of the workers who perform services for the commercial establishment. Classification as a common law employee is determined by a number of factors. An employer’s right to control means and the manner of performing the work determines this status even though an employer gives the worker substantial discretion and freedom to act.

Other factors include whether the employee is paid on a regular basis, the employer providers the materials and tools, the employer controls the work premises, the employer may terminate the worker and the worker may leave before the assigned task is completed without facing liability for nonperformance. If this employment relationship exists, employers have certain legal requirements regardless of what title or classification is given to the workers, how payments are calculated or made and whether the employee works full or part-time.

The business is legally-required to obtain workers’ compensation coverage, withhold Social Security taxes and pay unemployment taxes. Payment is governed under the Fair Labor Standards Act and there must be regulatory compliance with standards governing employment discrimination. Federal and state labor standards laws, including safety and health requirements, may also apply.

Federal and Minnesota law may also determine that workers are statutory employees even if the worker is not a common law employee. Specific rules apply to occupations such as salespersons and to family-owned businesses that employ family members. The laws governing common law employees also cover these workers.

Workers who follow an independent trade, business or profession where their services are offered to everyone are usually classified as independent contractors who are exempt from many federal and state labor laws. Federal and state laws also determine whether a worker is an independent contractor.

Under Minnesota law, for example, nonresidents who perform personal or professional services in the state are classified as employees for income tax withholding. Direct sellers and real estate agents are classified as independent contractors for federal tax purposes in some cases. Independent contractors in the construction industry must meet certain specifications under Minnesota law.

Legal advice can assist businesses with classifying workers drafting legal agreements governing their services and make a sound choice of business entity. This business planning can help make businesses profitable and comply with federal and state laws.

Source: Minnesota Department of Employment and Economic Development, “A guide to starting a business in Minnesota,” Retrieved Nov. 30, 2014

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