The U.S. Department of Labor’s Wage and Hour Division will stop enforcing the prior administration’s rule used to determine whether workers are “independent contractors” or “employees” under federal wage and hour laws.

The definition of “independent contractor” is important because it determines whether the Fair Labor Standards Act (FLSA) applies to particular workers. Only employees (not independent contractors) are covered under the FLSA’s regulations on minimum wages, overtime and record-keeping. So, in order to comply with federal labor laws, employers need to understand the difference between employees and independent contractors in order to correctly classify workers.

On May 1, the DOL issued a field assistance bulletin announcing that, when conducting FLSA investigations over worker classifications, the Wage and Hour Division will stop applying a rule established only last year. The so-called “2024 Rule” had been the controlling standard for audits and compliance actions. And while the2024 Rule remains in effect for purposes of private litigation, the DOL will not apply the rule in department investigations. Instead, the DOL will once again enforce the FLSA based on guidance in fact sheet 13, first published in July 2008, and an  opinion letter that was first published on April 29, 2019, later withdrawn, and reissued on May 2, 2025.

Enforcing the FLSA Based on Guidance From 2008

In enforcing the FLSA moving forward, the DOL will be guided by fact sheet 13 (July 2008 not March 2024), which outlines seven nondeterminative factors for worker classification. Among the factors the DOL will consider 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; and
• The degree of independent business organization and operation.

The guidance also identifies certain “immaterial” factors such as: the place where work is performed; the absence of a formal employment agreement; whether an alleged independent contractor is licensed by state/local government; and the time or mode of pay.

The opinion letter further explains that DOL “does not determine employee status by simply counting factors, but by weighing these factors in order to answer the ultimate inquiry of whether the worker is ‘engaged in business for himself or herself,’ or ‘is dependent upon the business to which he or she renders service.’”

Leading Up to the DOL’s Decision

Historically, the DOL did not define the term “independent contractor” through regulation and, instead, relied on informal guidance, such as fact sheet 13 (July 2008).

Then, in 2020, the DOL proposed a five-factor test to determine when a worker is an independent contractor. The five-factor test emphasized two factors: the principal’s right to control the work; and the worker's opportunity for profit or loss. If those two factors did not clearly indicate whether a worker was an independent contractor, the additional three factors were considered: the amount of skill required; the degree of permanence of the working relationship; and whether the work was part of an integrated unit of production. The rule was finalized in January 2021, under current President Donald Trump’s first administration. However, almost immediately the “2021 Rule” faced legal challenges and was later rescinded under the subsequent administration.

Then, on Jan. 9, 2024, the DOL published a different final rule defining the term “independent contractor” under the FLSA. The rule, which was established under former President Joe Biden and became effective March 11, 2024, introduced a six-factor “economic realities” test. The six-factor test focused on the economic dynamics between employers and workers by examining: the opportunity for profit or loss depending on managerial skill; investments by the worker and the employer; the degree of permanence of the work relationship; the nature and degree of control; the extent to which the work performed was an integral part of the employer’s business; and skill and initiative. Unlike the prior rule, under the 2024 Rule no one factor was to receive any predetermined weight.

The 2024 Rule also triggered a number of lawsuits challenging the legality of the rule. These suits are currently pending in district courts across the country and, with a new administration in place, the DOL is taking the position in those lawsuits that it is reconsidering the 2024 Rule and considering rescinding the regulation. In its field assistance bulletin on May 1, the DOL reiterated that it is “currently reviewing and developing the appropriate standard for determining FLSA employee versus independent contractor status.”

Takeaways for Employers

Faced with ever-changing worker classification guidance, employers may be tempted to throw their hands up in frustration. But there are things that employers can (and should) do to stay on the right side of FLSA enforcement actions and to avoid civil actions.

Since the 2024 Rule has not yet been rescinded, and remains in effect for purposes of private litigation, employers should take a cautious approach (for now) when it comes to policy changes and continue to monitor the situation for further developments.

At the same time, employers should be mindful of the new guidance. Employers should take a careful look at the 2008 version of fact sheet 13 and consider how the factors outlined in the guidance apply to the company policies and practices regarding independent contractor classifications. Employers should pay particular attention in the context of enforcement actions.

Employers should also be aware of different state and local laws on independent contractor classifications in the states and localities where they operate. These laws remain unaffected by rule changes on worker classifications under the FLSA. Employers should continue to take care to follow all state and local laws.

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Reprinted with permission from the June 23, 2025 edition of the Law.com © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.