Independent Contractor Classification: Rule Changes and Their Impact on Workers

        An Analysis of Shifting Rules from 2021 to 2025

Why Independent Contractor Classification Matters to Workers

Independent contractor classification plays a critical role in the American workforce as it determines whether a worker is considered an employee or an independent contractor. This distinction affects eligibility for benefits, labor protections, tax responsibilities, and workplace rights. Over the past five years, this classification has been the subject of substantial regulatory shifts, each affecting workers and businesses in nuanced ways. This blog post examines three pivotal periods: the 2021 rule under the Trump administration, the 2024 rule change implemented by the Biden administration, and the 2025 changes under the current Trump administration. We break down these changes and explain their real-world impact on workers.

The differences between these rules are nuanced but essentially the Trump Administration’s changes are designed to make it easier to classify workers as independent contractors instead of employees.  These changes can result in workers being denied rights under the employment law, such as the right to overtime pay.

2021 Trump Administration Rule Change: Easier to Claim Workers as Independent Contractors

In 2021, the Trump administration instituted a new rule changing how to determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA).  This rule emphasized two “core factors” in determining independent contractor status: the nature and degree of control over the work, and the worker’s opportunity for profit or loss. Other factors—such as the permanency of the relationship, skill required, and integration into the business—were considered secondary.

The administration’s professed rationale was to provide businesses and workers with a simpler, more predictable framework. However, by focusing on these core factors, the rule generally made it easier for businesses to classify workers as independent contractors. Businesses and supporters argue this increases job flexibility, but the practical results are reduced workplace protections like overtime pay, minimum wage, and unemployment insurance.  Critics argued that this rule risked misclassifying workers, thereby denying them these important protections.

2024 Biden Administration: Restored a Broader, Multifactor Approach

In 2024, the Biden administration reversed course, rescinding the 2021 rule and restoring a broader, multifactor “economic reality” test. This new rule directs evaluators to consider a wider range of factors equally, including:

• The degree of control exercised by the employer
• The worker’s opportunity for profit or loss
• The permanence of the working relationship
• The amount of skill required for the work
• The extent to which the work is integral to the employer’s business
• The worker’s investment in equipment or materials

Unlike the 2021 rule, no single factor is determinative. The intent is to capture the full economic relationship between the worker and the business.  If the worker is economically dependent on the employer for work, as a matter of economic reality, they are not independent contractors. For workers, this shift generally makes it harder for companies to classify individuals as independent contractors, potentially extending more labor protections and benefits to a larger share of the workforce.

The IRS uses a similar analysis that considers several factors to determine how a worker should be classified, noting that the “keys are to look at the entire relationship and consider the extent of the right to direct and control the worker.”

2025 Proposed Trump Administration Shift: A Return to Easy Misclassification?

In early 2025, the Department of Labor (DOL) issued a bulletin announcing it will stop enforcing the 2024 Biden rule when determining whether a worker should be classified as an employee or an independent contractor.  The bulletin does not revoke the 2024 rule, but it denotes a shift in how the DOL will enforce any actions concerning this issue.

The Trump DOL has stated it will, instead, rely on the principles outlined in the July 2008 Fact Sheet #13 and Opinion Letter FLSA2019-6.  Fact Sheet #13 gives seven factors to be considered:

• The extent to which the services rendered are an integral part of the principal’s business.
• The permanency of the relationship.
• The amount of the alleged contractor’s investment in facilities and equipment.
• The nature and degree of control by the principal.
• The alleged contractor’s opportunities for profit and loss.
• The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
• The degree of independent business organization and operation.

The bulletin states that the 2024 Biden Rule remains in effect for purposes of private litigation.  Since this new guidance is slightly different from both the prior 2021 Trump Rule and the 2024 Biden rule, it likely indicates the Trump DOL will be proposing additional rulemaking regarding this issue.  Given the prior history of the administration, any new rule under the Trump DOL will likely be similar to the 2021 rule which made it easier to classify a worker as an independent contractor.  If so, this will result in more workers being denied the rights and benefits provided under the labor laws.

Comparative Analysis: Impact on Workers’ Rights, Benefits, and Job Security

Ultimately, these regulatory swings create uncertainty for both workers and employers. For contractors who value flexibility and autonomy, the Trump-era rules may seem more appealing; however, they tend to favor businesses over worker protections.  For those who seek job security, benefits, and legal protections, the Biden-era rule offers broader coverage and better safeguards for workers.

Conclusion: Key Takeaways and Implications for Workers

Independent contractor classification rules have significant consequences for workers’ livelihoods, rights, and workplace protections. These regulatory changes make it especially difficult for workers to understand their rights.  Since there are time deadlines on any claim under the FLSA, it is important to get a review as soon as possible.  If you have questions about whether you are properly classified as an independent contractor, contact The Lore Law Firm for a free confidential review.