Independent Contractor or Employee? What the New DOL Rule Means for Employers in 2025
Is your organization utilizing independent contractors? If so, the latest update from the U.S. Department of Labor (DOL) could have a major impact on how you classify workers - and on your risk of compliance issues.
On January 2025, the DOL’s Wage and Hour Division unveiled its final rule, “Employee or Independent Contractor Classification Under the Fair Labor Standards Act (FLSA)”, which takes effect March 11, 2025.
This new rule replaces the 2021 Independent Contractor Rule and is designed to bring greater clarity - but also tighter scrutiny—on who qualifies as an independent contractor vs. employee.
Key Factors in the New DOL Worker Classification Rule
Unlike the 2021 framework that prioritized two “core factors,” the new rule weighs multiple factors equally when determining employment status. Here’s what employers need to know:
Opportunity for Profit or Loss
Does the worker’s income depend on their own managerial skill, judgment, and business acumen?Investments by Worker and Employer
Who is making financial and resource investments—the worker (like equipment or marketing) or the company (like training and systems)?Degree of Permanence
Is the relationship temporary/project-based, or is it ongoing like traditional employment?Nature and Degree of Control
Does the company dictate schedules, tasks, and restrict outside work—or does the worker set their own terms?Integral Part of the Business
Is the worker performing tasks that are central to your business operations?Skill and Initiative
Is the worker applying specialized skills and independent business judgment—or simply following direction?Additional Factors
Any other circumstances that indicate economic dependence or independence.
Why This Matters for Employers
Misclassification is one of the most common compliance pitfalls for employers. According to the Department of Labor, worker misclassification can result in back wages, penalties, and increased audit risk. And with this new rule taking effect in March 2025, scrutiny will only increase.
Companies relying on contractors should review agreements, evaluate roles, and ensure their practices align with the updated standards.
Don’t Risk Noncompliance
When new regulations like this arise, employers face heightened audit potential. Now is the time to:
Review your independent contractor agreements
Reassess roles and responsibilities under the new factors
Strengthen compliance practices to avoid costly penalties
Want to talk this through? Salt & Light Advisors can help you understand how the rule applies to your business and protect you from unnecessary risk.
