DOL Relaxes Worker Status Classification
Jul 23, 2025The rule change provides a more balanced framework for structuring relationships
On May 1, the United States Department of Labor (DOL) Wage and Hour Division (WHD) published a Field Assistance Bulletin (FAB No. 2025-1) that instructs its field staff to “no longer apply the 2024 Rule” when determining employee vs. independent contractor status in Fair Labor Standards Act (FLSA) investigations. Instead, while the DOL reconsiders the 2024 Rule, the WHD has directed staff to refer to Fact Sheet #13: Employment Relationship Under the Fair Labor Standards Act (July 2008) and a 2019 Opinion Letter — about individuals working for a “virtual marketplace company” — in their investigations.
The 2024 Rule Narrowed Independent Contractor Status
Under the 2024 Rule, the DOL’s enforcement position was that if the worker were economically dependent on the employer for work, then that worker would be classified as an employee, but if the worker was in business for themselves, then the worker was an independent contractor. The 2024 Rule specified six factors that must be considered to determine the “economic realities” of the worker-employer relationship:
- The opportunity for profit and loss. Do workers earn profits or suffer losses through independent decision-making?
- Investments. Does the worker make investments that are capital or entrepreneurial in nature?
- Permanence of the work relationship. Is the working relationship indefinite or exclusive of work for other employers or recipients of services?
- Degree of control. What is the employer’s control over the work, even if that control isn’t exercised?
- Importance to the business. Is the work “critical, necessary, or central” to the company’s principal business?
- Skill and initiative. Does the worker use specialized skills to perform the work?
The 2024 Rule was intended to narrow the scope of the independent contractor classification and codify existing case law. On a practical level, the 2024 Rule led to heightened enforcement discretion and made it more difficult for employers to classify workers as independent contractors.
It’s important to note that this new guidance of May 2025 does not invalidate or rescind the 2024 Rule. Officially, the 2024 Rule remains in effect for purposes of private litigation until the DOL takes further action. We’re watching for the first Regulatory Agenda of the second Trump Administration to see if DOL intends actually to revise or rescind the 2024 Rule.
The new (old) test
The “economic realities” test, as applied before the 2024 Rule, considers a range of factors to determine whether workers are in business for themselves — and, therefore, independent contractors — or are dependent on the hiring entity (the employer). These factors include:
- Whether the work is integral to the hiring entity’s business;
- The permanency of the parties’ relationship;
- The contractor’s investments in facilities or equipment;
- The degree of control by the hiring entity over the contractor;
- The contractor’s opportunity for profit or loss;
- The amount of independent judgment or initiative required in marketplace competition for the contractor to succeed; and
- The degree of independence with which the contractor organizes and operates their business.
What now?
The guidance from the WHD is effective immediately, and overall, this is good news for businesses utilizing independent contractors. This news also alleviates some of the concerns, from some quarters, that the new Secretary of Labor, Lori Chavez-DeRemer, would be “too pro-labor.”
It’s also interesting to note that the Biden-era Opinion Letter FLSA 2019-6, which said that independent contractors who received their work through a virtual marketplace app were properly classified as independent contractors, and which the Biden Administration subsequently had rescinded, it is now back in effect. This means that businesses in the digital marketplace can once again rely on it, thanks to the Portal-to-Portal Act, which protects businesses from liability when they act in compliance with a DOL Opinion Letter.
While things have become more flexible at the federal level, employers are reminded that many states — most notably California, New Jersey, and Massachusetts — have adopted standards that differ from those under federal law. In New Hampshire, where Orr & Reno is located, there are several definitions that may become applicable to the analysis of whether a worker is an employee or an independent contractor (depending on the state agency involved in the situation). So, for example, when considering workers’ compensation matters at the state level, for which the state Department of Labor is the regulating entity, there are 12 criteria specified under NH RSA 281-A:2 V1(b) that must be met to qualify as an independent contractor.
If you have any questions about how this shift in the WHD’s enforcement guidelines could impact your worker classification practices — or compliance obligations under the FLSA and state law — don’t hesitate to contact Orr & Reno for assistance.
