The Department of Labor Issues Guidance on Independent Contractor Misclassification

June 2025

Natashia Wright, Associate Director, Benefits Compliance

On May 1, 2025, the U.S. Department of Labor (“DOL”) issued Field Assistance Bulletin 2025-1, providing guidance related to the determination of independent contractor versus wage-withheld employee status, pursuant to the requirements of the Fair Labor Standards Act (“FLSA”). Currently, the DOL is in the process of reviewing and amending the Agency’s 2024 Final Rule, which was issued for the purpose of revising historical worker status determination standards. During the Agency’s review of the 2024 Final Rule, the DOL’s Wage and Hour Division (“WHD”) will apply DOL/WHD Fact Sheet #13 and Opinion Letter FLSA2019-6 standards for purposes of worker status determinations in the virtual marketplace context. This guidance was issued for the purpose of temporarily providing clarity throughout the Agency’s review and amendment of the 2024 Final Rule.

Employer Action Items

• Exercise caution if adjusting worker status classification determinations to comport with the WHD’s May 1^st announcement, given that the 2024 Final Rule has not been formally rescinded or amended at this time; consequently, note that the requirements of the 2024 Final Rule remain legally binding.
• Employers should continue to monitor developments regarding any future repeal, rescission, or amendment of the 2024 Final Rule and should contact their engaged advisors (including their legal counsel and their insurance issuers and/or brokers) to evaluate and discuss any potential employment reclassification initiatives prior to commencement.
• Consider conducting a workforce employment status audit in order to assess status determinations reflective of relevant jurisdictional requirements existing at the federal and state levels. Always consider the impacts associated with employment status designations as to the employer’s payroll-related practices, overtime remuneration, eligibility for enrollment and/or benefit plan participation, and for purposes of generalized labor law related compliance.  

Summary

In its May 1, 2025, announcement, the DOL instructed its WHD investigators to disregard the requirements and standards articulated under the 2024 Final Rule for purposes of their compliance enforcement activities. The announcement also provided that the WHD would revert to the enforcement standards and requirements espoused under the Agency’s 2008 Fact Sheet and its 2019 Opinion Letter (effectively returning the Agency’s enforcement expectations to comport with the traditional “economic realities” inquiry for puposes of assessment of worker status). The “ecomonic realities” inquiry is notably less stringent than the requirements espoused under the 2024 Final Rule. In particular, this move by the Agency highlights a shift towards a broader scope of applicability respecting independent contractor status designations.

Effective immediately, DOL investigators are directed to assess independent contractor status consistent with the standards and requirements of the “economic realities” inquiry. Notably, this involves the evaluation of multiple factors related to the worker’s relationship with the employer and is designed primarily to assess whether a worker operates independently or relies significantly upon the hiring entity. Specific factors evaluated under the economic realities inquiry are detailed below.

• Whether the work is integral to the business;
• The duration and permanency of the relationship;
• The worker’s investment in equipment or materials;
• The business’s degree of control over the worker;
• The worker’s opportunity for profit or loss;
• The level of market competition and initiative exercised; and
• The degree of independent business operation.

Please remember the 2024 Final Rule continues in full force and effect until such time as the DOL affirmatively rescinds and/or amends the 2024 Final Rule via the public rulemaking process, as defined by the Administratvie Procedure Act (“APA”). To that end, the DOL has announced a suspension of multiple ongoing enforcement actions related to worker status designation investigations, until such time as their review and amendment of the 2024 Final Rule is complete. Consequently, private party litigants may continue to apply the standards and requirements espoused under the 2024 Final Rule for evidentiary and position support purposes. The May 1 announcement from the DOL also stated that the Agency intends to draft substantive new final rulemaking clarifying the Agency’s current interpretation of the appropriate standards and requirements related to workforce status designations. Organizations, including franchisors and manufacturers, should remain alert, particularly in those industries that are susceptible to misclassification claims.

Exercise caution with worker status designation actvities during this interveening period, particularly if electing to implement the standards of the economic realities inquiry, given that the 2024 Rule remains legally binding. Continue to monitor developments regarding amendement, repeal, or rescission of the 2024 Final Rulemaking. As always, consult with experienced and qualified legal counsel to inform any worker status determination activities during this time, as reclassification activities necessarily implicate signficant employer consequences.

Additional Information & Resources

• DOL Field Assistance Bulleting 2025-1