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Last Updated: 8/23/2018

Classifying a Worker

As a business owner, you and your workers should know if they are employees or independent contractors. Knowing this information will help you withhold employment and income taxes when required.

What’s the difference between an employee and an independent contractor?

The degree of control and independence in your relationship determines if a worker is an employee or an independent contractor. The Minnesota Department of Revenue considers many factors falling into three broad categories:
  • Behavioral Control: Do you (the business) have a right to direct or control how the work is being done? This control may happen through instruction, training, or other means.
  • Financial Control: Do you have a right to direct or control the financial and business aspects of the worker’s job?
  • Relationship of the Parties: How do you and the worker perceive your relationship?
You must weigh all relevant factors when determining if someone is an employee or independent contractor. Some factors may indicate a worker is an employee, while others indicate they are an independent contractor. For more information about these factors:
  1. Complete federal Form SS-8 and submit it to the IRS. You or your worker may submit the form. 
  2. Send a copy of the completed Form SS-8 to the Minnesota Department of Revenue.
  3. Once you receive a determination from the IRS, send us a copy of the determination.
Note: If you incorrectly classify an employee as an independent contractor, you must pay employment tax equal to 3 percent of the misclassified worker’s compensation plus any penalties and interest.