Surging changes to workplace laws understandably have employers suffering from whiplash. Historically, employment laws have shifted when presidential administrations have changed. A May 1 announcement by the U.S. Department of Labor about its intended approach to the classification of individuals as independent contractors is a recent example.
A number of operational and economic considerations can encourage employers to classify workers who are performing services on their behalf as independent contractors, rather than as employees. Unlike employees, independent contractors are generally not covered by the business’ benefits plans, workers’ compensation coverage, and unemployment insurance. Typically, no withholdings – taxes or otherwise – are deducted from independent contractors’ earnings. Additionally, for purposes of the Fair Labor Standards Act (FLSA), overtime and minimum wage requirements do not apply.
Improperly classifying an employee as an independent contractor can pose significant financial consequences and even litigation risk for an employer, so getting this step right is critical. Let’s look at how the standard for classifying workers has changed over the last several years and where we stand today.
At the end of the first Trump administration in January 2021, the Department of Labor announced new employer-friendly regulations that made it easier for businesses to classify individuals as independent contractors.
Fast forward to just a few weeks later, and the newly inaugurated President Biden very quickly announced his administration’s intention to halt the implementation of the new rule. Several months later, the DOL followed through and formally withdrew the regulation.
In January 2024, after much litigation, the Biden administration’s DOL issued a new rule that adopted a six-factor “economic realities” test designed to help employers analyze and determine whether an individual is truly in business for himself, and therefore an independent contractor, or whether the person is an employee. This new rule was viewed as more “employee-friendly“ – that is, it required employers to consider more workers as their employees.
Following the start of the second Trump term, employers braced themselves for another U-turn. They didn’t have to wait long.
Earlier this month, the DOL’s Wage and Hour Division issued a Field Assistance Bulletin, which signaled a return to a standard where employers had greater freedom to treat individuals as independent contractors. First, the bulletin advised that the DOL would no longer apply the prior, more restrictive rule. Although the January 2024 rule remains relevant in private litigation, the Wage and Hour Division stated it would no longer use the more “employee-friendly” standard when it investigated FLSA complaints or pursued FLSA enforcement actions against employers. More importantly, the bulletin indicated that the DOL was considering formally replacing the January 2024 rule with a rule that officially “green lights” more workers being classified as independent contractors.
We’re still in a period of transition, but going forward it looks like employers may have more discretion in treating workers as independent contractors. Employers should monitor future DOL actions when gauging whether and how to classify an individual as an employee or as an independent contractor.
This article first appeared in the May 22, 2025, issue of The Journal Record. It is reproduced with permission from the publisher. © The Journal Record Publishing Co.
