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Minnesota’s New Legislation on Employee Classification & Prevailing Wage Requirements

June 5, 2024

The Minnesota Legislature enacted several significant labor laws targeting employee misclassification and prevailing wage requirements.

A legislative change in the new law addresses employee misclassification. Employers now face stricter penalties, up to $10,000 per violation, for wrongly classifying employees as independent contractors to avoid paying minimum wages, overtime, unemployment insurance, and workers’ compensation. This legislation (HF5247) allows all workers, not just those in construction, to sue employers for misclassification.

Minnesota is also the first state to mandate prevailing wage requirements on affordable housing projects funded by Low-Income Housing Tax Credits. This ensures that developers pay wages at union rates, typically required for publicly funded construction projects. The law introduces new transparency requirements for developers, necessitating disclosing past labor violations and creating wage theft prevention plans for contractors with a history of non-compliance.

These legislative changes are expected to enhance worker protections through stricter penalties for misclassification and establishing prevailing wage requirements on affordable housing projects. Increased transparency and accountability for developers and legal recourse for workers facing misclassification strengthen worker rights.

However, these changes may increase costs for employers, particularly in the construction sector, potentially raising project expenses and slowing affordable housing development. The new laws might also face legal challenges and impose additional administrative burdens on businesses, especially smaller ones. Additionally, higher costs associated with prevailing wage requirements might reduce the number of affordable housing units built, potentially worsening the housing shortage in the state.