New Labor Dept Rules On Independent Contractor Vs. Employee

Big picture

The Department of Labor’s rule (effective March 11, 2024) replaced the 2021 Trump-1.0‑era independent contractor rule and restored a broader, six‑factor “economic realities” test to decide whether a worker is an employee or a genuine independent business under the Fair Labor Standards Act (FLSA). The rule makes it generally harder to classify workers as independent contractors and increases misclassification risk, especially where the company exercises significant control or the work is central to the business.

Core change in the test

Under the 2021 rule, two “core” factors (control and opportunity for profit or loss) carried outsized weight, which tended to favor contractor status in many close cases. The new rule returns to a totality of the circumstances analysis using six non‑exhaustive factors, with no single factor being determinative.

The six main factors

The DOL’s economic‑realities test now focuses on:

• Opportunity for profit or loss based on managerial skill (e.g., ability to raise prices, manage costs, expand business).
• Investments by the worker and the potential employer (who is putting real capital at risk, beyond tools of the trade).
• Degree of permanence of the work relationship (ongoing or indefinite relationships point to employee status).
• Nature and degree of control (scheduling, supervision, discipline, price setting, ability to work for others, use of technology to monitor performance).
• Extent to which the work is an integral part of the employer’s business (core production/service work leans employee).
• Skill and initiative (whether the worker uses specialized skills in an independent, entrepreneurial way vs. being trained and directed by the company).

All factors are weighed together to determine whether, as a matter of economic reality, the worker is in business for themselves (contractor) or economically dependent on the hiring entity (employee).

Practical implications for employers

• More workers will likely be deemed employees under the FLSA, triggering minimum wage, overtime, recordkeeping, and potential benefits and tax obligations.
• Labels in contracts, 1099s, and job titles do not control; actual practice and degree of control do.
• Industries relying heavily on gig or flexible talent (e.g., logistics, healthcare staffing, certain tech and creative roles) face higher misclassification risk and should re‑audit classifications under the six‑factor framework.

Evolving landscape post‑2024

Subsequent Labor Department (DOL) guidance in 2025 signaled a pause on aggressive enforcement of the 2024 rule and a partial return to a more employer‑friendly “economic reality” approach, but the six‑factor analysis and misclassification exposure remain important reference points for compliance planning. Employers still must also navigate stricter state standards (like California’s ABC test), applying whichever rule is most protective of workers.

More information is available here.

David Shiller

David Shiller is the Publisher of LightNOW, and President of Lighting Solution Development, a North American consulting firm providing business development services to advanced lighting manufacturers. The ALA awarded David the Pillar of the Industry Award. David has co-chaired ALA’s Engineering Committee since 2010. David established MaxLite’s OEM component sales into a multi-million dollar division. He invented GU24 lamps while leading ENERGY STAR lighting programs for the US EPA. David has been published in leading lighting publications, including LD+A, enLIGHTenment Magazine, LEDs Magazine, and more.

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