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Classifying a Worker
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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.
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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:
- Complete federal Form SS-8 and submit it to the IRS. You or your worker may submit the form.
- Send a copy of the completed Form SS-8 to the Minnesota Department of Revenue.
- 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.
