New DOL Guidance Clarifies Independent Contractor Classification Enforcement

In a rapidly evolving regulatory environment, employers must stay vigilant to ensure compliance with labor laws. The U.S. Department of Labor (DOL) has recently issued significant updates regarding the classification of workers as independent contractors under the Fair Labor Standards Act (FLSA). These changes, outlined in Field Assistance Bulletin (FAB) 2025-1, provide critical guidance on enforcement practices and underscore the importance of accurate worker classification.

A Brief History of Regulatory Changes

On January 10, 2024, the DOL published a final rule revising its guidance on determining whether a worker is an employee or an independent contractor under the FLSA. This rule rescinded the 2021 Independent Contractor Rule and reinstated a multifactor, totality-of-the-circumstances analysis consistent with longstanding judicial precedent. The rule became effective on March 11, 2024.

However, the implementation of this rule has been met with legal challenges. As of early 2025, the DOL has delayed defending the 2024 final rule in federal court, indicating a potential reassessment of its position.

FAB 2025-1: Enforcement Guidance Amidst Uncertainty

In light of ongoing litigation and regulatory uncertainty, the DOL issued FAB 2025-1 on May 1, 2025. This bulletin provides interim enforcement guidance, directing the Wage and Hour Division (WHD) to rely on the principles outlined in Fact Sheet #13 and the reinstated Opinion Letter FLSA2019-6, particularly in the context of virtual marketplace platforms. Notably, the FAB supersedes any prior or conflicting guidance provided to WHD staff on enforcement related to independent contractor misclassification.

Understanding the Economic Reality Test

The reinstated guidance emphasizes a six-factor economic reality test to assess worker classification:

1. Opportunity for Profit or Loss: Evaluates whether the worker exercises managerial skill that affects their economic success or failure

2. Investments by the Worker and Employer: Considers the nature and extent of investments made by both parties

3. Permanence of the Work Relationship: Assesses the duration and continuity of the working relationship.

4. Degree of Control: Examines the level of control the employer has over the worker's tasks and performance

5. Integral Nature of the Work: Determines whether the work performed is an integral part of the employer's business

6. Skill and Initiative: Considers the worker's skill level and initiative in performing the work

Importantly, the DOL clarifies that no single factor is determinative; instead, all factors should be considered in totality to assess the nature of the working relationship.

Implications for Employers

The DOL's guidance does not alter existing regulations but reflects how the department is allocating enforcement resources during the review of the 2024 final rule. Employers should continue to monitor the situation for updates and ensure that their worker classifications align with the economic reality test to mitigate the risk of misclassification.

Looking Ahead

As the legal landscape continues to evolve, employers must remain proactive in assessing their worker classifications. The DOL's interim guidance provides a framework for compliance, but the potential for future regulatory changes necessitates ongoing vigilance.

How Thrive PEO Can Help

At Thrive PEO, we stay ahead of the regulatory curve so you don’t have to. Whether you’re navigating evolving independent contractor rules or managing workforce compliance, our team is here to help you mitigate risks and stay compliant.

Contact Thrive PEO today to learn how we can support your business in adapting to the latest labor law developments at: (918) 794-2200.

Thrive PEO is a full-service Professional Employer Organization (PEO); and provides a customized suite of human resource solutions designed to help SMBs: lower employee benefit costs, increase productivity and profitability, and reduce employer liabilities and business risks. Services cover the entire employee lifecycle, and include: payroll and tax administration, employee benefits and related administration, HR and compliance, workers’ compensation insurance, retirement plans and more – all delivered via market-leading HRIS technology.