The distinction between an employee and an independent contractor has always been pivotal in labor law, given the significant implications it holds for taxation, benefits, and legal protections. The US Department of Labor’s (DOL) March 1, 2025, change on defining “independent contractor” introduces substantial modifications to the criteria previously used for enforcement purposes.

New Definition Effective March 1, 2025

The DOL's new rule introduces a more streamlined and focused test that emphasizes two core factors:

• Control: The new rule prioritizes the level of control the worker has over their work. A worker is more likely to be considered an independent contractor if they have substantial control over the performance of their tasks, including setting their own hours, selecting their projects, and having the ability to work for multiple clients.
• Economic opportunity for profit or loss: The focus here is on whether the worker can realize a profit or incur a loss based on their managerial skill, rather than being compensated solely on the basis of time spent working or piece rate.

Secondary considerations may still be taken into account, but the emphasis is clearly on these two primary factors. This is intended to simplify and clarify the determination process for both employers and workers.

The new definition is rooted in DOL’s interpretation of the Fair Labor Standards Act (FLSA), which aims to distinguish employees who are economically dependent on their employers from independent contractors who are in business for themselves. The rationale behind this change is to reduce misclassification and to protect workers from labor rights violations

Practical Implications For Businesses

The new rule may require businesses to reassess their workforce classifications. Companies that rely heavily on independent contractors might need to adjust their contracts and work arrangements to ensure compliance. This could result in increased administrative burdens and potential costs associated with reclassifying workers as employees, including providing benefits and adhering to wage laws.

Practical Implications For Workers

Workers currently classified as independent contractors may find themselves reclassified as employees, gaining access to employment protections such as minimum wage, overtime pay, and benefits. However, this reclassification might also limit their flexibility and autonomy, as employers impose more control over work schedules and conditions.

Conclusion

The March 1, 2025, change in defining “independent contractor” status aims to protect workers' rights and provide clarity for businesses, but its implementation will require careful navigation of legal and economic landscapes. Employers and workers should consult with an experienced Employment Law Attorney.  The Galdean  Law Firm can assist with these issues.