Labor Department Pauses Enforcement of 2024 Independent Contractor Rule

On May 1, 2025, the U.S. Department of Labor (DOL) Wage and Hour Division announced that it won’t enforce a final rule published in 2024 that changed the analysis for determining whether an individual is classified as an employee or independent contractor under the Fair Labor Standards Act (FLSA).

The 2024 rule continues to apply in enforcement matters in which the department has already assessed back wages and penalties. In litigation over the 2024 rule, the U.S. DOL has indicated that it’s reconsidering the 2024 rule, including whether to rescind it altogether.

It’s not always clear-cut whether a worker is an independent contractor or employee. When a worker’s duties and working style seem to fall within a grey area, businesses rely on U.S. DOL and IRS rules to come to the correct conclusion. Because the U.S. DOL’s announcement doesn’t affect private litigation, employee rights, employer responsibilities, IRS rules, or state rules, employers should continue to exercise due caution and consider all relevant rules when classifying workers.

DOL Independent Contractor Background

In general, independent contractors are self-employed individuals who provide services to businesses. Businesses don’t owe payroll taxes on behalf of or provide benefits to their independent contractors, and independent contractors aren’t owed overtime pay. On the other hand, employees work at the direction of an employer, and employers are generally responsible for paying a portion of employee payroll taxes — including unemployment taxes — and complying with the overtime rules for nonexempt employees outlined in the FLSA.

Although the 2024 rule still applies in private litigation, U.S. DOL enforcers will now rely on a 2008 fact sheet and a reinstated opinion letter from 2019 for future matters. The fact sheet lays out a seven-factor analysis for determining worker classification, based on judicial precedent, while the opinion letter applies that analysis to a virtual marketplace company.

The 2024 rule made some key revisions to previous worker classification rules. Namely, it provided a non-exhaustive list of six factors that may be considered when determining a worker’s classification, different from the non-exhaustive list of seven-factors provided in the 2008 fact sheet. Many viewed the 2024 rule as more restrictive because of its consideration of a business’s economic dependence on a worker; under the rule, a worker is more likely to be an employee when the business economically depends on the worker’s output.

The U.S. DOL has been sued over its 2024 rule. For example, the Associated Builders and Contractors sued the U.S. DOL alleging that the 2024 rule unlawfully raises the minimum annual salary threshold for exempt workers and indexes it for inflation every three years starting in July 2027. By raising this minimum threshold, more employees will be subject to FLSA, which requires overtime for hours worked beyond 40 within a seven-day period. Note that some states have more stringent overtime rules, calling for overtime pay after a specified number of hours worked in a single day.

Current Enforcement Guidance

Starting May 1, 2025, with the issuance of Field Assistance Bulletin 2025-1, the Department of Labor will enforce pre-2024 rules. According to the 2008 fact sheet, U.S. DOL enforcers are to consider the full context when determining if a worker is a contractor or an employee. Factors to be evaluated include the following:

• Whether the work is a significant part of the company’s core business

• The permanence of the relationship

• The amount of the worker’s investment in facilities and equipment

• The level of control the business has in how the worker operates

• Who bears the risk of losing or making money

• The worker’s amount of initiative, judgment, or foresight in competition with others

• The level of the worker’s independent business organization and operation

The seven-factor list is non-exhaustive, which means that U.S. DOL enforcers may consider other factors when determining whether a worker is an independent contractor or employee.

Employer Takeaway

Some may view a return to pre-2024 rules as a more employer-friendly interpretation of worker classification, in which workers are more likely to be classified as independent contractors in grey-area situations. However, a pause in U.S. DOL enforcement may add complexity considering that the 2024 rule continues to apply in private litigation. Businesses should also consider that IRS can also weigh in on worker classification, which are unchanged by the U.S. DOL’s pause in enforcement of the 2024 rule. The Internal Revenue Code has its own definition of an employee, and the agency has its own three-factor test, based on common law, for determining a worker’s status. Employers who are unsure how to classify a worker can submit Form SS-8 to receive an IRS determination at no cost. With legal challenges to the 2024 rule underway, we may see more changes to worker classification rules. Employers should remain vigilant, carefully review both the 2024 rules and the 2008 fact sheet, and continue to evaluate their policies and practices to ensure compliance.