Determining Worker Classification: Contractor or Employee?

Ken Engel

As a business attorney serving clients throughout Minnesota and Wisconsin, one of the most common and high-stakes issues I help address is worker classification. Whether you're running a startup in Minneapolis, a construction business in Hudson, or a growing company in Madison, understanding the difference between an independent contractor and an employee is critical to avoiding legal and financial trouble.

 

Misclassifying workers—intentionally or unintentionally—can expose your business to costly penalties, back taxes, and litigation. Let’s break down what you need to know.

Understanding the Working Relationship

 

The real difference between an employee and an independent contractor isn’t based on titles or contracts—it’s based on how the relationship operates day-to-day.

  • Independent contractors are typically self-employed. They often use their own tools, control their schedules, and work with multiple clients. They’re responsible for their own taxes and benefits.

  • Employees are generally integrated into your business. They follow your direction, work set hours, and receive benefits. You, the employer, withhold their taxes and are responsible for employment law compliance.

If you're unsure how your business relationship should be structured, a worker classification attorney in St. Paul or Madison can help assess your situation clearly.

Control and Autonomy: A Key Factor

 

The IRS and state agencies often look at control as the central test. If your business dictates how, when, and where the work is done, you're likely dealing with an employee, not a contractor.

On the other hand, if your worker has the freedom to determine how to complete their tasks—and brings their own tools or methods—they may be a contractor. As a business attorney in Milwaukee or River Falls, I often help businesses document these relationships properly to reduce risk.

Risks of Misclassification

 

Misclassifying employees as independent contractors can lead to:

  • Back payroll taxes

  • Penalties and interest from the IRS or state agencies

  • Wage and hour claims under federal and state labor laws

  • Unemployment insurance and workers’ compensation liability

These consequences can hit small businesses especially hard. If you're operating in Minnesota or Wisconsin, it's essential to follow both federal guidelines and state-specific rules, which can vary significantly.

Evaluating Worker Roles Regularly

 

Worker classification isn’t a one-time decision—it should be revisited as job roles evolve. If a contractor becomes more integrated into your business, that may trigger a reclassification. Many of my clients in Minneapolis, Hudson, and Madison conduct annual reviews of worker roles, and I’m happy to guide you through that process.

When to Seek Legal Advice

 

Understanding classification rules doesn’t require memorizing IRS codes—it requires a thoughtful look at how the work is performed and how much control you exert. If there’s any doubt, seeking guidance from a knowledgeable business lawyer can protect your business from significant financial exposure.

 

I work one-on-one with business owners throughout Minnesota and Wisconsin to evaluate risk, revise contracts, and ensure compliance with applicable laws. Whether you’re hiring your first contractor or managing a blended team, I’ll help you stay legally compliant and operationally confident.

Need Help with Worker Classification?

 

Let’s work together to clarify your workforce and reduce your legal exposure. Contact me today for a consultation—serving clients in Minneapolis, St. Paul, Madison, Hudson, Milwaukee, and River Falls.