Just like Dorothy following the yellow brick road to Oz battling lions, tigers, and bears, the path to determining the right classification for summer employees, interns, independent contractors, and volunteers can be hazardous. Mischaracterizing a worker can lead to sanctions and fines for Employers. Due to current economic challenges, concerns are being raised that Employers are misclassifying workers as interns, volunteers and independent contractors to save from paying wages, benefits, and taxes. The Department of Labor is paying close attention and auditing workplaces.
There is a presumption anyone performing work for a “for-profit” enterprise is an employee. In Minnesota, the nature of the employment relationship is determined by using the same tests, and in the same manner as employee status is determined under both workers’ compensation and unemployment insurance law. Compensation of Minnesota employees is determined under Minn. Stat. § 181.722, Subd. 3, and the federal Fair Labor Standard Act. Dorthy Gale had to stay on the yellow brick road to try to avoid the wicked witch and her flying monkeys. As an Employer the path to proper classification of workers will avoid the ire of the Department of Labor. Correctly assessing a worker as an employee, student/intern, independent contractor, or volunteer is critical.
Employee: An employee is someone who works for hire in the services of another. The existence or non-existence of an employment relationship between two parties is a question of fact. To the extent the facts lead to a conclusion the parties have an employment relationship, the Employer is responsible for state and federal taxes, workers’ compensation, and unemployment insurance.
Student/Intern: The use of student/interns in the workplace has increased over the years. This group of workers is currently the subject of close scrutiny by the Department of Labor. Student/interns are not considered employees under both state and federal law, if their use in the workplace generally passes six tests offered by the Department of Labor. The tests are:
- The training experience is similar to what is provided at school;
- The training experience is for the benefit of the student/interns;
- The student/interns do not displace regular employees;
- The employer providing the training receives no immediate advantage from the activities of the trainees;
- Student/interns are not necessarily entitled to a job at the conclusion of the training; and
- The employer and the student/interns understand the work is unpaid training. (Note: a reasonable stipend may be permitted)
Independent Contractor: Independent contractors are hired to perform special services of a limited scope and duration, and they typically perform the same services for a variety of businesses. The standards in Minnesota to be considered in determining whether or not an individual is an employee or an independent contractor include:
- The right to control the means and the manner of performance;
- The mode of payment;
- The furnishing of materials or tools;
- The control of the premises where the work is done; and
- The right of the employer to discharge the individual.
Generally, the more control an Employer has over the individual performing the work, the work site, and the nature, quality, and manner in which work is performed, the more likely the relationship is an employer-employee relationship vs. an independent contractor arrangement.
Volunteer: Volunteers freely offer services to non-profits, charitable organizations, and churches at no charge without expectation of compensation. “…Any individual who renders service gratuitously for a nonprofit organization,” is not considered an employee. Minn. Stat. § 177.23 Subd. 7 (7). Volunteers at a non-profit organization are not subject to workers’ compensation or unemployment benefits. Someone performing work on behalf of a for-profit enterprise, is presumed to be an employee.
Properly classifying workers, including summer workers, is important to your business. Minn. Stat. § 181.722 prohibits the misrepresentation by an Employer of the nature of an employment relationship with its workers, including not requesting a worker enter into an agreement, or sign a document which results in misclassification of a worker’s status. An Employer may be subject to penalties for improperly classifying workers. Be sure to intentionally follow the yellow brick road to avoid the lions, tigers and bears along the way. OH MY!