The Star Tribune reported today that, “Minnesota is scrapping a four-year-old law intended to curb shady employment practices in the construction industry.” As a result of the passage of Senate File 1653 during the 2012 legislative session, the independent contractor exemption certificate rule and 2% withholding rules put in place in 2008 will be repealed.
2008 ICEC & 2% Withholding Rules
The 2008 rule required contractors to obtain Independent Contractor Exemption Certificates and companies that hired them to collect a two percent withholding tax. But in a report to the Legislature this year the state Department of Revenue reported that instead of the 20,000 contractors it expected to find, only 1,694 had taxes withheld through the system in 2010.
In 2009 alone, more than 7,000 new LLCs formed in the state, many of them with construction related names. The article states, “Thousands of construction workers sidestepped the law by registering themselves as limited liability companies, which exempted them from the law, the mountain of paperwork that went it and the withholding tax.”
A Burdensome Rule
The article quotes BAM Executive Vice President Pam Perri: “It was a debacle,” said Pam Perri, executive vice president of the Builders Association of Minnesota, which presents residential construction companies. To obtain an independent contractors certificate, construction workers had to present no less than 20 documents. Most found it easier to just register as an LLC. “It was too burdensome,” she said of the old system.
New Registration Rule in Effect July 1, 2012
Starting in July the Minnesota Department of Labor and Industry will be phasing in a new two-year pilot program registration system that replaces the ICEC and 2% withholding requirements. The pilot program requires construction contractors, including independent contractors and business entities, to register with DLI by September 15, 2012.
Exempted from this registration are those who are already licensed, certified or registered with DLI or those who are employees of a company already licensed, certified or registered.
No fee will be charged for initial registration.
For DLI’s explanation of the rule and a link to the MN statute visit: http://www.dli.mn.gov/CCLD/PDF/misclassification.pdf