MASTERWERKS LLC BUILDING SERVICES Custom Home Building, Transformations, Renovations
June 2025
MINNESOTA'S NEWLY AMENDED WAGE THEFT LAW:
Its Unintended Consequences Could Strand Your Project
Reboot Your Thinking about Choosing a Builder: It’s a Critical Decision
When you’re undergoing home renovations, the last thing you want to think about is an ugly situation where your project gets upended and indefinitely delayed, midway through the schedule. Unfortunately, given the recent amendments to Minnesota’s Wage Theft Law, we could potentially see that drastic scenario a lot more often.
From the homeowners’ angle, the root of the problem lies with the common—but false—assumption that all builders are more-or-less the same or interchangeable. Therefore, they think price should be the main criterion when deciding who to hire.
This could not be further from the truth. And now more than ever, selecting a builder solely based on price could seriously jeopardize your project.
So, let’s deconstruct the stubborn mirage that builders are interchangeable.
There Are Vast Differences Between Builders— Including Administrative Capability
Every builder has their own way of thinking about a project. They differ in their formulas and standards, materials, workmanship, design criteria, administrative capabilities, and of course, client communication and care.
As a result, their building outcomes are radically different in terms of aesthetics, function, durability, performance, project communication and administration, and ultimate resale return.
Builders who deliver a lower price typically manage by selecting cheaper materials; hiring less experienced, less skilled labor; and—especially pertinent to this discussion—cutting their administrative investment and operating costs. To break their equation down a little more:
-
Material costs: Small-scale building firms pay the same for comparable materials because they don’t have the clout to command volume discounts. So, they can only gain a pricing advantage by lowering the standards.
-
Labor costs: Small-scale building firms either pay the price of skilled labor or they don’t. Like any other employment scenario—think doctors, lawyers, athletes—top-notch tradespeople earn more because they are the best at what they do, which makes a huge difference to work performance and product outcome.
-
Administration and oversight: This is the area where small, low-cost builders are notoriously lacking in capabilities. They don’t have the time, staffing resources, or professional guidance to handle complex compliance matters properly, setting the stage for major problems as regulatory efforts increase and intensify.
The Amended Law Will Force Builders to Double-Down on Administration
So, why is administrative capability suddenly so much more important to the viability of building firms—and by extension—to the successful completion of their projects? Here’s a little background:
With the Amended Wage Theft Law that became effective March 1, 2025, Minnesota’s Attorney General, Department of Revenue, Department of Labor and Industry (DLI), and other state entities are now taking direct aim at the construction industry. The primary target is independent contractor relationships.
Ostensibly, this was done to protect the worker and provide full employment benefits, i.e. worker’s compensation, unemployment, paid overtime, holidays and paid time off (PTO), and other items.
The underlying reality, however, is that lawmakers and other governing officials have consistently viewed the independent contractor system as providing people with a way to evade taxes and collection. They believe the construction industry is rife with undisclosed income and cash payments, managed off the books. (Never mind the fact that reputable independent contractors and subcontractors adhere to 1099 reporting; tax collection apparently still presents a problem.) In short, the more individuals that can be classed as W-2 employees with withholding the better, which now makes the general contractor the employer and responsible revenue collection viaduct.
To enforce the amended law, the test for classification as an independent contractor went from a 9-point to a much more stringent 14-point qualification. The tightened requirements will force many independents into an employee status. In turn, this will typically raise labor rates for those affected and thus increase costs for clients.
These new requirements hit smaller, low-end builders the hardest, demanding substantial administrative, financial and managerial commitments to maintain compliance, which will severely strain their organizations, and from there, create a ripple effect of other concerns. They are now responsible not only for their own primary subcontractors’ compliance but—fairly or not—also for the people their subcontractors hire and their actual downstream compliance. Any failures will migrate upstream, along with enforcement, penalties, and overall responsibility, falling on the general contractor and exposing them to far greater risks and administrative requirements.
New Vulnerabilities for Builders, and by Extension, Homeowners
The State of Minnesota is serious about enforcing the Amended Wage Theft Law, and they have constituted and increased staffing and budgets accordingly. Non-compliance can lead to civil and criminal penalties of up to $10,000 per day for each wrongly classified person, as well as various fines, restitution for nonpayment of taxes, shortages in worker benefits, income, and other payments with corresponding penalties.
The State has also instituted an outreach program targeted at disaffected workers, who could claim financial rewards or benefits for information that leads to recovery. Clearly, this new program could also motivate complaints from disgruntled competitors, who rightly or wrongly believe that non-compliance must be key to “the other guy’s” success.
Along with heightened enforcement action, the amended law gives the various regulatory agencies full investigative audit and subpoena power, as well. And that’s where the pain potential escalates for homeowners.
If the state inspectors suspect problems with the way a contractor is administering compliance matters, they would put a stop to all their projects underway. As the client, your home improvement project would be shut down, no work allowed, and you would be left with things partially completed. Also, after a full investigation, payments and penalties would likely be due, subcontractors who were not directly affected could file liens against your property for nonpayment, the lender undoubtedly would freeze funding, and if you were in a rental, you could find yourself making two payments for a lot longer than planned.
And there’s another concern: Does your builder have the financial resources to cover any of the potential costs and/or penalties? Because although you might not be directly liable, if the builder goes bankrupt, you could be left high and dry. Nor could you simply plug-and-play another builder at that juncture; there would be contractual complications, pricing disconnects, permitting and other regulatory considerations.
In short, you would be looking at a very ugly and complex mess.
So, to reiterate: Now is the time to reframe your thinking about builder selection. While cost will always be a factor in decision making, the amended law creates urgent new issues to consider. Investigate the administrative and organizational strength and capabilities of any builder you’re considering and weigh those factors among your highest priorities when you’re examining options and making comparisons.