The Department of Labor on May 1, 2025, announced it would no longer enforce a Biden-era rule on independent contractors, setting the stage for a drastic overhaul that will likely result in a more employer-friendly regulation.
While the DOL reviews the rule, which has been in effect since March 2024, it announced in a field assistance bulletin that it would use the standard set forth by the agency in 2008 and refer to Fact Sheet No. 13 when determining whether a worker is an employee or independent contractor in Fair Labor Standards Act (FLSA) investigations.
The older rule is more employer friendly than the Biden rule, which set a stricter definition of an independent contractor for employee classification. Several lawsuits challenging the rule are still pending in courts across the country.
The issue of how to classify workers as employees or independent contractors has vexed employers for decades.
Classifying someone as an independent contractor allows an employer to avoid purchasing workers’ compensation insurance, providing employee benefits and paying employment taxes. In some cases, this practice is abused, robbing a worker of the protections and benefits of being an employee.
Back and forth
The rule that took effect under the Biden administration sets forth six factors for evaluating whether a worker qualifies as an independent contractor:
- Worker’s opportunity for profit or loss.
- Investments in tools and other work-related expenses made by the worker and the employer.
- Degree of permanence of the work relationship.
- Nature and degree of control over how the work is performed.
- Extent to which the work performed is integral to the employer’s business.
- Use of the worker’s skill and initiative.
That rule replaced one that took effect in the last year of the first Trump administration.
While we may see new rulemaking after the review, the DOL’s staff will use the standards set out in Fact Sheet No. 13 and a 2019 opinion letter, according to a field assistance bulletin issued May 1 by the DOL’s Wage and Hour Division.
The fact sheet notes that the U.S. Supreme Court has, on several occasions, indicated there is no single rule or test for determining whether an individual is an independent contractor or an employee under the FLSA.
According to the fact sheet: “Among the factors which the Court has considered significant are:
- The extent to which the services rendered are an integral part of the principal’s business.
- The permanency of the relationship.
- The amount of the alleged contractor’s investment in facilities and equipment.
- The nature and degree of control by the principal.
- The alleged contractor’s opportunities for profit and loss.
- The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
- The degree of independent business organization and operation.”
The takeaway
If your firm routinely uses independent contractors, you will need to revisit your practices and assess whether the new rule changes your relationship with them. It may be wise to consult legal counsel.
You can start by reviewing Fact Sheet No. 13 to understand how it differs from the 2024 rule.
Also, different standards for what constitutes an independent contractor exist under various employment laws, including federal, state and local statutes. You should ensure you continue to comply with those laws as the DOL reviews the Biden rule.
