In the wake of shifting federal policy, understanding independent contractor classification under the Fair Labor Standards Act (FLSA) has never been more important – especially for businesses in the fields of construction, gig economy, and general contract labor. Proper workforce classification matters because it affects a business’s legal exposure, tax obligations, workforce agility, and financial planning. The stakes are high – missteps can result in audits, penalties, and costly litigation. While the independent contractor versus employee analysis under the FLSA has generally revolved around the “economic realities test,” the focus of the test has shifted.
Recent History
Here is a breakdown of the key developments over the last eight years and what it means to you:
A. Trump-Era 2021 DOL Regulation – “Core Factors”
In January 2021 the U.S. Department of Labor (DOL) issued a rule emphasizing two “core” factors for defining independent contractor status: (i) nature and degree of control over the work; and (ii) opportunity for profit and loss based on initiative or investment. These two factors were deemed most probative of the nature of the relationship and given more weight than other factors like permanence, skill type, and integration in the business. The 2021 Rule de-emphasized the other factors and gave employers greater clarity and more flexibility in classifying workers as independent contractors. This was a shift to a narrower interpretation, and one that was a more business-friendly approach.
B. Biden Administration Final 2024 Rule
In May 2021, the Biden DOL withdrew the 2021 Rule before it took effect, arguing the mechanical weighting of two factors conflicted with historical court application of the economic-realities test. The agency emphasized a case-by-case totality-of-the-circumstances approach. In January 2024, the Biden DOL adopted a new rule discarding the core-factor approach in favor of six non-exclusive factors, consistent with long-standing legal precedent:
- Profit & loss opportunity;
- Worker versus employer investment;
- Permanency of the work relationship;
- Nature and degree of employer control;
- Degree to which the work is integral to the business; and
- Level of skill and initiative.
This 2024 Rule was to ensure more workers receive the protections of employee status, making it more challenging to properly classify workers as independent contractors. This shift was clearly biased towards declaring most independent contractors as employees. The Biden DOL deemed this important because “employees” are entitled to minimum wage, overtime pay, and other protections of the FLSA, and generally get unemployment benefits and workman’s compensation if they are injured on the job. None of these entitlements applies to independent contractors.
C. DOL’s May 2025 Bulletin – A Return to Stability
On May 1, 2025, new DOL leadership under the Trump Administration issued a Field Assistance Bulletin directing investigators not to apply the 2024 Rule in enforcement actions. Instead, the investigators are to rely on: (i) Fact Sheet #13 (2008 six-factor reality test); and (ii) Opinion Letter FLSA 2019-6, reinstated as Opinion Letter FLSA 2025-2. The Bulletin specifies that enforcement is to align with Fact Sheet #13, which outlines the following factors to consider in the economic realities test:
- The extent to which the services rendered are an integral part of the principals 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 & loss;
- The amount of initiative, judgment, and foresight on the open-market competition with others required for the success of the independent contractor; and
- The degree of independent business organization and opportunity.
With the Fact Sheet #13 factors combined with the Opinion Letter 2025-2, the DOL is reverting to a court-style totality test of determining independent contractor status – a middle ground between the rigid core-factor rule of the 2021 Rule and the more expansive 2024 Rule framework.
Business Implications
Businesses can expect more predictability under the familiar six-factor test of the FLSA. However, the 2024 Rule remains in effect for purposes of private litigation until further DOL action. Therefore, businesses should maintain robust documentation across all six factors. Businesses should also be diligent with their contractor vetting by ensuring written agreements, documented autonomy, independent investments, and profit/loss mechanisms are in place and evidentiary.
Final Take
While the legal landscape remains in flux, the current DOL enforcement stance honors judicial precedent and familiar FLSA tests – offering a structured, defensible framework for classifying independent contractors. Businesses should audit contracts, document economic realities, and stay alert to potential future changes – especially as litigation and legislative actions continue.