Are You an Independent Contractor?
Episode 347 - The U.S. Department of Labor’s constantly changing rules on classifying workers as either independent contractors or employees is creating confusion among employers. What’s the current status?
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Transcript of Podcast Episode 347
On January 10, 2024, the U.S. Department of Labor (DOL) under President Biden published a final rule (2024 Rule) that revised the DOL’s previous guidance on classifying individual workers as independent contractors or employees under the Fair Labor Standards Act (FLSA). At that time, there was much debate and concern whether individuals, particularly gig economy workers such as those working for Uber and Lyft, were not receiving the protection of being classified as employees, including minimum wage, overtime pay, etc. Misclassification of employees as independent contractors carries significant liability and penalties under the FLSA including payment of owed wages and overtime pay, liquidated damages and attorneys’ fees and costs.
The former rule issued in 2021 (2021 Rule), which was specifically rescinded by the 2024 Rule, designated two core factors in determining whether an individual was an employee or independent contractor: control and opportunity for profit or loss. The 2021 Rule also did not consider whether the work performed was central or important to the potential employer’s business. Accordingly, the DOL under President Biden believed the 2021 Rule narrowed the “economic reality test” long used by the courts, by limiting the facts that may be considered as part of the test. “Under the final rule, the Department will instead rely on the long-standing multifactor “economic reality” test used by courts to determine whether a worker is an employee or independent contractor. This test relies on the “totality of the circumstances where no one factor is determinative.”
[1]
The 2024 Rule appeared to make it harder for an individual to be classified as an independent contractor rather than an employee. The 2024 Rule applied six factors in the analysis:
(1) opportunity for profit or loss depending on managerial skill;
(2) investments by the worker and the potential employer;
(3) degree of permanence of the work relationship;
(4) nature and degree of control;
(5) extent to which the work performed is an integral part of the potential employer’s business; and
(6) skill and initiative.
On May 1, 2025, the DOL under President Trump, in a Field Assistance Bulletin, announced that it was then currently “reviewing and developing the appropriate standard for determining FLSA employee versus independent contractor status.”
[2] The DOL stated that it will no longer apply the 2024 Rule’s analysis to independent contractor or employee status, although it did not specifically rescind the rule and advised that “the 2024 Rule remains in effect for purposes of private litigation and no...
