DOL Will Replace Biden-Era Independent Contractor Rule

The Department of Labor will replace the current Independent Contractor Rule, which provided an analysis for determining independent contractor status under the Fair Labor Standards Act, according to a September 5 release of the department’s agenda.

The agency announced in May that it would stop enforcing the rule, and its new rule is listed in the “proposed rule stage,” according to the agenda.

“The 2024 IC Rule is the subject of five separate legal challenges,” the agency’s agenda stated. “The Department intends to rescind the 2024 IC rule and is considering how it will proceed with respect to independent contractor classification under the FLSA employee or under the FLSA.”

The rule used under former President Joe Biden revised the definition of “independent contractor” and made it easier for workers to be classified as employees, rather than freelancers. The rule was a point of contention for some financial advisers, who prefer the “independent contractor” designation.

The 2024 rule applied a six-factor test to determine a worker’s status, such as a worker’s profit or loss; the financial stake a worker has invested in the work; the degree of permanence of the work relationship; the degree of control an employer has over the person’s work; whether the work is essential; and a factor regarding the worker’s skill and initiative.

Employees, unlike independent contractors, are entitled under federal law to key protections such as minimum wage, overtime pay and workplace safety standards enforced by the Occupational Safety and Health Administration.

In May, the agency stated it would revert to the pre-2024 enforcement framework. That guidance, outlined in a DOL fact sheet, requires employers to distinguish an employment relationship from a strictly contractual one based on an “economic reality” test, rather than “technical concepts.”