Independent Contractor or Employee — PERA’s Guide to
Determining Membership Eligibility
With some exceptions, you are required to enroll your non-temporary employees
who earn over $425 per month while working in PERA-covered positions into the
Public Employees Retirement Association. Independent contractors, however,
are exempt from participation. Although the statute pertaining to PERA
participation is clear, determining when an individual is an employee or
independent contractor can sometimes be difficult.
PERA, with some variations, uses the 20 common law factors used by the
Internal Revenue Service, or IRS, to qualify someone as an employee. In most
cases, if the IRS determines the person is an employee, that individual is an
employee under PERA as well.
The purpose of this brochure is to help you determine if a specific individual
should be classified as an independent contractor or an employee. Each
consideration listed, in and of itself, does not determine an individual's status.
Taken as a whole, they will typically allow you and PERA to come to an
agreement regarding an individual's status.
Also, if an individual's status changes from that of an employee to an
independent contractor, PERA requires an explanation of the reason for the
change as well as a copy of the contract with the individual.
The general rule is that an individual is an independent contractor if you, the
employer, have the right to control or direct only the results of the work and not
the means and methods of accomplishing that result. This can be looked at in
1. Is the work performed under a written contract or agreement?
While a contract is usually entered into with an independent contractor rather
than an employee, a person does not become an independent contract simply
because a written contract exists.
2. What are the individual's work responsibilities?
If the individual is solely responsible for the outcome of a specific project,
especially one of short duration, and must meet the employer's overall
requirements, he or she is more likely to be an independent contractor. If the job
is ongoing, the individual is more likely to be an employee. Likewise, if the person
is under direct supervision by the employer, who requires when, where and how
the work is to be performed, that individual is probably an employee.
3. What is the individual's work schedule?
People who set their own hours are more likely to be independent contractors.
Those who must work specific hours, or whose hours are set by the employer,
are more prone to be employees.
4. Who provides significant tools, materials and supplies?
If a person has his or her own tools and provides materials to complete an
assigned project, that person is probably an independent contractor. If the
employer supplies significant tools and materials, the individual is likely an
5. Has the individual made a significant investment in the means
necessary to provide a service?
An independent contractor may have a sizable investment in a place of business,
vehicles and equipment. An employee, on the other hand, usually has invested
only time (and sometimes money) in learning to provide a service.
6. Where is the work done?
If the majority of the work is performed at an outside location (or could be), then
the person is more likely to be an independent contractor. If the work is done on
the premises of the employer, or on a route or location designated by the
employer, the person is more prone to be an employee.
7. Who controls who does the work?
If the individual can directly hire another person to complete a task, then the
individual is probably an independent contractor. If, on the other hand, the worker
must do the work, then the individual is more likely an employee.
8. Who hires, supervises and pays assistants?
If the individual has sole responsibility to hire, fire, pay and supervise any
assistants, then the person is probably an independent contractor. If the
employer hires any assistants and those people answer ultimately to the
employer rather than the individual, then the position is probably held by an
9. Can the individual work for more than one employer simultaneously?
A person who works for a number of persons or firms, holding simultaneous
contracts, is an independent contractor. An independent contractor makes
services available to the general public on a continuing basis. He or she may
maintain an office, hire assistants, maintain a business license and be listed in
business and telephone directories. An individual who is required to work solely
for the employer at a given time is more likely to be an employee.
10.Under what conditions may the individual be discharged?
An independent contractor may only be discharged for failing to meet the
obligations of a contract or agreement. An employee may be discharged at any
time for failing to follow rules or methods established by the employer.
While the above factors are the main considerations in determining whether an
individual is an independent contractor or an employee, the following issues are
also considered in making a final determination.
11.Payment for services
A person who is paid on a job basis is usually an independent contractor. Such
payment, however, may include a predetermined lump sum which is computed
by the number of hours required to do the job at a fixed hourly rate, or periodic
partial payments based on a percentage of the total job price or percentage of
the job completed. An employee is generally paid a salary or wages by the hour,
week or month.
An independent contractor is normally responsible for payment of business and
travel expenses. Payment of business expenses, such as meals, lodging, travel,
phone, fax, etc., by the employer would indicate the individual is acting as an
employee rather than an independent contractor.
An employer does not normally provide fringe benefits to an independent
contractor. If the individual receives benefits, such as health insurance, sick
leave or paid vacation, he or she is more than likely an employee.
If the person is solely responsible for his or her own training on how to perform
the service he or she provides, then the individual is probably an independent
contractor. If the employer provides on-the-job training on how to perform
services in a particular way, pays for the worker's training, or demands periodic
training, the individual is likely an employee.
15.Name under which the person performs work (responsibility)
Independent contractors are more likely to be responsible for their own personal
behavior if they are charged with negligence. The employer is more likely to be
responsible if actions of their employees are called into question.
An employee has the right to quit, usually with adequate notice, but an
independent contractor is usually responsible for the completion of the job.
For more assistance in determining if an individual is an independent contractor
or an employee, please use the attached worksheet.
This publication is meant to explain the Minnesota Public Employees Retirement Association law
as simply and accurately as possible. If there is any discrepancy between this publication and the
actual federal or state law, the provisions of the law govern.