On September 4, 2025, the Department of Labor (DOL) announced its intention to rescind a 2024 Biden-era rule (“2024 Final Rule”) for determining whether a worker was an “employee” or an “independent contractor” under the Fair Labor Standards Act (FLSA). The DOL previously announced in May that it would no longer enforce the 2024 Final Rule and instead, would rely on the 2008 “economic realities” test, as set forth in Fact Sheet #13 and Opinion Letter FLSA 2019-06, for determining independent contractor status.

The “economic realities” test is widely seen as more “employer friendly” compared to the 2024 Final Rule, meaning, it will now be easier to classify workers as independent contractors under the FLSA. Among other requirements, the FLSA requires employers to pay employees federal minimum wage and overtime, but does not require the same for independent contractors.

It is important to note, however, that certain states and the IRS impose different tests for independent contractor status. For instance, California, Massachusetts, and New Jersey, impose a stricter “ABC test.” Therefore, a worker could be considered an employee under the California “ABC test” (and subject to California minimum wage and overtime, meal and rest breaks, paid sick leave, etc.), even if they are considered an independent contractor under the federal “economic realities” test (and not subject to federal FLSA wage and overtime protections).

Employer Takeaways

Though the DOL announcements signal a more employer friendly stance for purposes of FLSA compliance, employers must still ensure they follow state laws when determining independent contractor status.

Additional Resources

Connect with a Sequoia consultant to learn how Sequoia’s compliance services are integrated in our benefits services and tailored solutions.  And if you’re already a Sequoia client, stay on top of your employer obligations with your Compliance Checklist that highlights important compliance dates, action items, and resources. 

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Emerald Law — Emerald is a Senior Compliance Consultant for Sequoia, where she works with our clients to optimize and streamline benefits compliance. In her free time, Emerald enjoys stand-up comedy, live music, and writing non-fiction.