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Test for classifying workers is shifting away from ‘economic reality’

July 2025 employment law letter
Authors: 

Zachariah J. Sibley, Axley Attorneys

In May 2025, the Trump administration’s U.S. Department of Labor (DOL) published guidance saying that it would stop enforcing a Biden-era rule—one that had rescinded a rule created during the first Trump administration—on the factors distinguishing independent contractors from employees. Although the Biden-era rule remains “on the books” for now while the DOL considers replacing it, the no-enforcement transitional period leaves employers to deal with uncertainty in classifying who are employees and who are independent contractors. This article seeks to provide employers with a better understanding of where the law has been and where it might be headed.

Why does independent contractor classification matter?

The DOL administers and enforces the Fair Labor Standards Act (FLSA). Under the FLSA, employees generally enjoy enhanced protections on matters such as minimum wage and overtime pay, unemployment insurance, workers’ compensation coverage, employer recordkeeping, and employer contributions to Social Security and Medicare. Independent contractors do not receive these same FLSA benefits. Instead, they bear their own obligations and risk regarding income taxes, insurance, and other business expenses.

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