By LPJ Legal, PLLC
Worker classification—employee vs. independent contractor—matters more than ever. While INDEPENDENT CONTRACTORS function as their own entity, EMPLOYEES are entitled to minimum wage, overtime, and other protections under the FLSA. Recently, the DOL announced a significant shift in how it enforces misclassification investigations. This article explains what changed, what remains the same, and what your business should do now to stay compliant.
Timeline: What changed at the DOL?
✔️ Before 2024: The DOL used the long-standing economic realities test (multi-factor, case-law based), outlined in Fact Sheet #13, July 2008.
✔️ 2024 Rule: The DOL pivoted to a six-factor “totality” test for determining whether a worker was an employee or an independent contractor under FLSA.
- Duration: The totality test was in practical use for about a year before enforcement was paused in 2025.
✔️ Current (2025): On May 1, 2025, the DOL’s Wage and Hour Division (WHD) issued (“FAB”) No. 2025-1, announcing that it would pause enforcement of the 2024 “independent contractor” rule and revert to the previous “economic realities” test when conducting FLSA enforcement.
Although the 2024 Rule remains on the books for private litigation, the DOL announced that it will no longer apply that rule in its own investigations, instead enforcing the economic realities test until further notice.
Understanding the differences: The 2024 Totality Test vs The Current Economic Realities Test
2024 Rule – Six-factor “totality of circumstances” (only used for private litigation)
The Totality of Circumstances test required an employer to evaluate the relationship between an independent contractor using the following six factors. The six factors were weighed equally.
- Whether or not the worker’s profit and loss is dependent on their managerial skill
- An evaluation of investments made by the worker and employer
- The degree of permanence of the relationship
- The nature and degree of the employer’s control
- The extent to which the work is integral to employer’s everyday business (versus if the work is on a special project/enhancement
- The worker’s skill and initiative
Weighing all six factors equally caused more workers who would previously be considered Independent Contractors to be considered Employees.
Economic Realities Test (the current standard)
The economic realities test considers the same factors as the 2024 rule, but leans more heavily on these two core factors:
- The nature and degree of the employer’s control
- Whether or not the worker’s profit and loss is dependent on their managerial skill
The emphasis on these two factors can shift the analysis heavily towards Independent Contractor from Employee.
Why this matters for your business
Whether you operate in real estate, construction, franchise operations, or other business services, the classification of your workforce impacts wage exposure, tax obligations, and litigation risk. At LPJ Legal, we help businesses both large and small navigate classification decisions, review contracts and staffing models, and ensure compliance across jurisdictions.
Whether you rely on seasonal hires, franchise contractors, or project-based workers in real estate and construction, make sure your practices reflect the facts on the ground—not just titles or labels.
If you would like assistance reviewing your independent-contractor arrangements, drafting compliant agreements, or responding to DOL or state audits, reach out to LPJ Legal.
Practical Steps for LPJ Legal Clients
The federal shift back to the Economic Realities Test doesn’t eliminate risk—it simply changes where that risk shows up. Now is the time to tighten internal processes and make sure your contractor model actually reflects the day-to-day working relationship.
Smart next steps for employers:
- Reassess worker classifications: Take a fresh look at how your contractors operate under the current test, especially around control and profit/loss opportunity.
- Strengthen your documentation: Clear contracts, proof of independent business activity, invoices, business insurance, and evidence of limited supervision all help support a contractor relationship.
- Refresh internal workflows: Ensure your onboarding, supervision, scheduling, and payment practices align with the realities of an independent-contractor model.
- Watch for state-level traps: Several states still apply stricter ABC-style tests, regardless of federal enforcement. Your compliance strategy should be state-specific, not federal-only.
- Monitor DOL updates: The enforcement pause is not permanent—additional rulemaking is expected.
Mistakes to Avoid
- Relying on job titles instead of job realities: Calling someone a “contractor” does nothing if the work looks and functions like employment.
- Defaulting to contractor status to reduce labor costs: The DOL—and courts—look at substance, not savings.
- Overlooking state law: Federal leniency does not override stricter state tests.
- Exerting too much control: Dictating hours, methods, training, or workflow is the fastest way to convert a contractor into an employee under both tests.
Trust the Experts at LPJ Legal, PLLC
New to LPJ Legal? We’re a dedicated group of experienced and highly credible legal professionals, proudly representing clients both locally and internationally with domestic offices in D.C., Maryland, Virginia, and Georgia. At LPJ Legal, we believe that a law firm should be more than a legal resource; it should be a trusted partner. Our team is committed to safeguarding our clients’ businesses, properties, and futures, providing powerful legal insights to help ensure their success. To become a business client, visit the LPJ Legal website, or call us directly at 202-643-6211.
