Federal Register, Volume 91 Issue 39 (Friday, February 27, 2026)

[Federal Register Volume 91, Number 39 (Friday, February 27, 2026)]
[Proposed Rules]
[Pages 9932-9976]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-03962]

[[Page 9931]]

Vol. 91

Friday,

No. 39

February 27, 2026

Part II

Department of Labor

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Wage and Hour Division

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29 CFR Parts 500, 795, and 825

Employee or Independent Contractor Status Under the Fair Labor
Standards Act, Family and Medical Leave Act, and Migrant and Seasonal
Agricultural Worker Protection Act; Proposed Rule

Federal Register / Vol. 91, No. 39 / Friday, February 27, 2026 /
Proposed Rules

[[Page 9932]]

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DEPARTMENT OF LABOR

Wage and Hour Division

29 CFR Parts 500, 795, and 825

[Docket No. WHD-2026-0001]
RIN 1235-AA46

Employee or Independent Contractor Status Under the Fair Labor
Standards Act, Family and Medical Leave Act, and Migrant and Seasonal
Agricultural Worker Protection Act

AGENCY: Wage and Hour Division, Department of Labor.

ACTION: Notice of proposed rule; request for comments.

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SUMMARY: The Department is proposing to rescind the analysis for
determining employee or independent contractor status under the Fair
Labor Standards Act (FLSA) currently set forth in 29 CFR part 795 and
replace it with the analysis that it published and adopted in a prior
final rule dated January 7, 2021, with a few modifications. In
addition, the Department proposes to apply this analysis to the Family
and Medical Leave Act (FMLA) and Migrant and Seasonal Agricultural
Worker Protection Act (MSPA), both of which incorporate the FLSA's
scope of employment.

DATES: Comments must be received on or before April 28, 2026.

ADDRESSES: You may submit comments, identified by Regulatory
Information Number (RIN) 1235-AA46, by either of the following methods:
Electronic Comments: Submit comments through the Federal
eRulemaking Portal at https://www.regulations.gov. Follow the
instructions for submitting comments.
Mail: Address written submissions to: Division of
Regulations, Legislation, and Interpretation, Wage and Hour Division,
U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW,
Washington, DC 20210.
Instructions: Response to this NPRM is voluntary. The Department
requests that no business proprietary information, copyrighted
information, or personally identifiable information be submitted in
response to this NPRM. Commenters submitting file attachments on
https://www.regulations.gov are advised that uploading text-recognized
documents--i.e., documents in a native file format or documents which
have undergone optical character recognition (OCR)--enable staff at the
Department to more easily search and retrieve specific content included
in your comment for consideration.
Anyone who submits a comment (including duplicate comments) should
understand and expect that the comment, including any personal
information provided, will become a matter of public record and will be
posted without change to https://www.regulations.gov. The Department
posts comments gathered and submitted by a third-party organization as
a group under a single document ID number on https://www.regulations.gov. All comments must be received by 11:59 p.m. ET on
April 28, 2026, for consideration in this rulemaking; comments received
after the comment period closes will not be considered.
The Department recommends that commenters submit their comments
electronically via https://www.regulations.gov to ensure timely receipt
prior to the close of the comment period. Please submit only one copy
of your comments by only one method.
Docket: For access to the docket to read background documents or
comments, go to the Federal eRulemaking Portal at https://www.regulations.gov. In accordance with 5 U.S.C. 553(b)(4), a summary
of this rule may also be found at https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Daniel Navarrete, Director, Division
of Regulations, Legislation, and Interpretation, Wage and Hour Division
(WHD), U.S. Department of Labor, Room S-3502, 200 Constitution Avenue
NW, Washington, DC 20210; telephone: (202) 693-0406 (this is not a
toll-free number). Alternative formats are available upon request by
calling 1-866-487-9243. If you are deaf, hard of hearing, or have a
speech disability, please dial 7-1-1 to access telecommunications relay
services.
Questions of interpretation or enforcement of the agency's existing
regulations may be directed to the nearest WHD district office. Locate
the nearest office by calling the WHD's toll-free help line at (866)
4US-WAGE ((866) 487-9243) between 8 a.m. and 5 p.m. in your local time
zone, or log onto WHD's website at https://www.dol.gov/agencies/whd/contact/local-offices for a nationwide listing of WHD district and area
offices.

SUPPLEMENTARY INFORMATION:

I. Background

A. Relevant FLSA, FMLA, and MSPA Definitions

Enacted in 1938, the FLSA requires that, among other things,
covered employers pay their nonexempt employees at least the federal
minimum wage for every hour worked and overtime pay for every hour
worked over 40 in a workweek, and it mandates that employers keep
certain records regarding their employees.\1\ The FLSA does not define
the term ``independent contractor,'' but defines ``employer'' in
section 3(d) to ``include[ ] any person acting directly or indirectly
in the interest of an employer in relation to an employee'';
``employee'' in section 3(e)(1) to mean, subject to certain exceptions,
``any individual employed by an employer''; and ``employ'' in section
3(g) to include ``to suffer or permit to work.'' \2\ The Supreme Court
has recognized that ``there is in the [FLSA] no definition that solves
problems as to the limits of the employer-employee relationship under
the Act.'' Rutherford Food Corp. v. McComb, 331 U.S. 722, 728 (1947).
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\1\ See 29 U.S.C. 206(a) (minimum wage requirements); 207(a)
(overtime pay requirements); 29 U.S.C. 211(c) (recordkeeping
requirements).
\2\ 29 U.S.C. 203(d), (e), (g). The FLSA defines a ``person'' as
``an individual, partnership, association, corporation, business
trust, legal representative, or any organized group of persons.'' 29
U.S.C. 203(a).
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The Supreme Court has interpreted the phrase ``suffer or permit''
that defines FLSA employment to be broad and more inclusive than the
common law standard. In Nationwide Mutual Insurance Co. v. Darden, the
Court explained that section 3(g)'s ``suffer or permit'' language
``stretches the meaning of `employee' to cover some parties who might
not qualify as such under a strict application of traditional agency
law principles.'' \3\ However, the Court also recognized that the
FLSA's ``statutory definition[s] . . . have [their] limits.'' Tony &
Susan Alamo Found. v. Sec'y of Labor, 471 U.S. 290, 295 (1985)
(internal citation omitted); see also Walling v. Portland Terminal Co.,
330 U.S. 148, 152 (1947) (``The definition `suffer or permit to work'
was obviously not intended to stamp all persons as employees[.]''). The
Supreme Court specifically recognized that ``[t]here may be independent
contractors who take part in production or distribution who would alone
be responsible for the wages and hours of their own employees.''
Rutherford Food, 331 U.S. at 729. Accordingly, federal courts of
appeals have uniformly held, and the Department has consistently
maintained, that independent

[[Page 9933]]

contractors are not ``employees'' for purposes of the FLSA.\4\
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\3\ 503 U.S. 318, 326 (1992); see also U.S. v. Rosenwasser, 323
U.S. 360, 362-63 (1945) (explaining that ``[a] broader or more
comprehensive coverage of employees within the stated categories
would be difficult to frame'' in ruling that employees paid by piece
rates may be covered by the FLSA's requirements).
\4\ See, e.g., Saleem v. Corporate Transp. Grp., Ltd., 854 F.3d
131, 139-40 (2d Cir. 2017); Karlson v. Action Process Serv. &
Private Investigation, LLC, 860 F.3d 1089, 1092 (8th Cir. 2017).
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Enacted in 1983, MSPA protects migrant and seasonal agricultural
workers by establishing employment standards related to wages, housing,
transportation, disclosures and recordkeeping.\5\ Agricultural
employers, agricultural associations, and farm labor contractors (as
those terms are defined in MSPA) must comply with such applicable
standards in their employment of migrant and seasonal agricultural
workers.\6\ MSPA also requires farm labor contractors to register with
the Department and obtain a certificate of registration.\7\ It is a
violation of MSPA to threaten, discharge, or in any manner discriminate
against any migrant or seasonal agricultural worker because such
worker, with just cause, files a complaint, institutes a proceeding,
testifies or is about to testify in a proceeding, or exercises any
right under MSPA.\8\ MSPA expressly adopts the FLSA's definition of
``employ'' as MSPA's definition of ``employ'' and thus incorporates the
``suffer or permit'' standard for determining the scope of employment
relationships.\9\
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\5\ See generally 29 U.S.C. 1801, et seq.
\6\ See 29 U.S.C. 1821-1823, 1831-32, 1841-1844.
\7\ See 29 U.S.C. 1811-1815.
\8\ 29 U.S.C. 1855(a).
\9\ 29 U.S.C. 1802(5) (``The term `employ' has the meaning given
such term under [the FLSA, 29 U.S.C. 203(g)].'').
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Enacted in 1993, the FMLA entitles eligible employees of covered
employers to take unpaid, job-protected leave for specified family and
medical reasons with continuation of group health insurance coverage
under the same terms and conditions as if the employee had not taken
leave.\10\ Eligible employees who take such leave must generally be
restored to the same or an equivalent position when they return to work
after FMLA leave.\11\ An employer cannot interfere with, restrain, or
deny an employee's exercise of or attempt to exercise any rights under
the FMLA.\12\ The FMLA adopts the FLSA's definitions of ``employ'' and
``employee'' and thus incorporates the FLSA's standard for determining
the scope of employment relationships.\13\
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\10\ See 29 U.S.C. 2611-2614.
\11\ See 29 U.S.C. 2614.
\12\ See 29 U.S.C. 2615.
\13\ 29 U.S.C. 2611(3) (providing that the terms ``employ'' and
``employee'' for purposes of the FMLA have the same meanings given
such terms in 29 U.S.C. 203(e) and (g)). The FMLA has its own
definitions for whether an employee is ``eligible'' for FMLA leave
and whether his or her employer is covered by the FMLA. See 29
U.S.C. 2611(2), (4).
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B. Economic Dependence and the Economic Reality Test

1. Supreme Court Development of the Economic Reality Test
Less than a decade after the FLSA was enacted, the U.S. Supreme
Court explored the limits of the employer-employee relationship in a
series of cases from 1944 to 1947 under three different federal
statutes: the FLSA, the National Labor Relations Act (NLRA), and the
Social Security Act (SSA). These cases established an ``economic
reality'' test to distinguish between employees and independent
contractors which is still used today in FLSA cases.\14\ Although the
longstanding ``economic reality'' descriptor is often repeated and is
the lens through which the individual worker's relationship with the
employer is viewed, the ultimate inquiry focuses on an individual's
``economic dependence'' for work.
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\14\ See Dep't of Labor, Independent Contractor Status Under the
Fair Labor Standards Act, Notice of Proposed Rulemaking, 85 FR
60600, 60601 (Sept. 25, 2020).
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In the first of these cases, NLRB v. Hearst Publications, Inc., 322
U.S. 111 (1944), the Supreme Court held that the NLRA's definition of
employment, which merely defined ``employee'' to ``include any
employee,'' id. at 113 n.1, was broader than that of the common law.
Id. at 123-25. Congress responded by amending the definition of
employment under the NLRA on June 23, 1947, with the ``obvious purpose
of . . . hav[ing] the [National Labor Relations] Board and the courts
apply general agency principles in distinguishing between employees and
independent contractors under the [NLRA].'' \15\
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\15\ NLRB v. United Ins. Co. of Am., 390 U.S. 254, 256 (1968).
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On June 16, 1947, 1 week before Congress amended the NLRA in
response to Hearst, the Supreme Court decided United States v. Silk,
331 U.S. 704 (1947), which addressed the distinction between employees
and independent contractors under the SSA (which did not define
``employee''). In that case, the Court relied on Hearst to hold that
``economic reality,'' as opposed to ``technical concepts'' of the
common law, such as master and servant, determines workers'
classification. Id. at 712-14. Although the Court found it to be
``quite impossible to extract from the [SSA] a rule of thumb to define
the limits of the employer-employe[e] relationship,'' it identified
five factors as ``important for decision'': ``degrees of control,
opportunities for profit or loss, investment in facilities, permanency
of relation[,] and skill required in the claimed independent
operation.'' Id. at 716. The Court added that ``[n]o one [factor] is
controlling nor is the list complete.'' Id. Nevertheless, based on the
factors that it identified, the Court found that the coal unloaders
were employees by referencing, among other things, the employer's
supervision and the workers' lack of opportunity for profit based on
initiative and investment.\16\ In addition, the Court held that the
truck drivers in that case were independent contractors by emphasizing
facts related to control, opportunity for profit, initiative and
investment.\17\
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\16\ Silk, 331 U.S. at 717-18 (finding that the employer ``was
in a position to exercise all necessary supervision over their
simple tasks'' and that the unloaders ``had no opportunity to gain
or lose except from the work of their hands and the[ir] simple
tools'').
\17\ Id. at 719 (``They own their own trucks. They hire their
own helpers. In one instance they haul for a single business, in the
other for any customer. The distinction, though important, is not
controlling. It is the total situation, including the risk
undertaken, the control exercised, the opportunity for profit from
sound management, that marks these driver-owners as independent
contractors.'').
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One week after Silk and on the same day Congress amended the NLRA,
the Court reiterated these five factors in Bartels v. Birmingham, 332
U.S. 126 (1947), another case involving employee or independent
contractor status under the SSA. In Bartels, the Court explained that
under the SSA, employee status ``was not to be determined solely by the
idea of control which an alleged employer may or could exercise over
the details of the service rendered to his business by the worker'';
instead, employees are ``those who as a matter of economic reality are
dependent upon the business to which they render service.'' Id. at 130.
The Court held that a dance hall's contractual right of control was
insufficient to establish an employment relationship with a band leader
that it hired. Id. at 132.
The same day as it decided Silk, the Court ruled in Rutherford Food
that certain workers at a slaughterhouse were employees under the FLSA,
and not independent contractors, by examining facts pertaining to most
of the five factors identified in Silk.\18\ The

[[Page 9934]]

Court also considered whether the work was ``a part of the integrated
unit of production'' (meaning whether the putative independent
contractors were integrated into the assembly line alongside the
company's employees) to assess whether they were employees or
independent contractors under the FLSA. Id. at 729-30.
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\18\ For example, the Court noted that the slaughterhouse
workers performed work on the ``premises and equipment of [the
employer],'' indicating little investment by the workers. 331 U.S.
at 730. The workers had a continuous relationship with the
slaughterhouse, indicating a permanent work arrangement. Id. ``The
managing official of the plant kept close touch on the operation,''
indicating control by the alleged employer. Id. And ``[w]hile
profits to the boners depended upon the efficiency of their work, it
was more like piecework than an enterprise that actually depended
for success upon the initiative, judgment or foresight of the
typical independent contractor.'' Id.
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In November 1947, 5 months after Silk and Rutherford Food were
decided, the Department of the Treasury (Treasury) proposed regulations
defining when an individual was an independent contractor or employee
under the SSA, which used a test that balanced the following factors:
(1) degree of control of the individual, (2) permanency of relation,
(3) integration of the individual's work in the business to which he
renders service, (4) skill required by the individual, (5) investment
by the individual in facilities for work, and (6) opportunity of the
individual for profit or loss.\19\
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\19\ See 12 FR 7966.
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Factors one, two, and four through six corresponded directly with
the five factors identified as being ``important for decision'' in
Silk, 331 U.S. at 716, and the third factor corresponded with
Rutherford Food's consideration of the fact that the workers were
``part of an integrated unit of production.'' 331 U.S. at 729. The
Treasury proposal further relied on Bartels, 332 U.S. at 130, to apply
these factors to determine whether a worker was ``dependent as a matter
of economic reality upon the business to which he renders services.''
\20\
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\20\ Id. The Treasury proposal was never finalized because
Congress amended the SSA to foreclose the proposal.
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Congress rejected the interpretations of the definitions of
``employee'' adopted in Hearst for the NLRA and in Silk and Bartels for
the SSA ``to demonstrate that the usual common-law principles were the
keys to meaning.'' Darden, 503 U.S. at 324-25. Congress did not,
however, similarly amend the FLSA following Rutherford Food.
In 1961, in Goldberg v. Whitaker House Cooperative, Inc., the
Supreme Court revisited independent contractor status under the FLSA
and reaffirmed that ``the `economic reality' rather than `technical
concepts' '' is the ``the test of employment'' under the FLSA.\21\ It
found that certain homeworkers were ``not self-employed . . . [or]
independent, selling their products on the market for whatever price
they can command,'' but instead were ``regimented under one
organization, manufacturing what the organization desires and receiving
the compensation the organization dictates,'' and thus employees.\22\
Finally, in Darden, the Supreme Court reiterated that the FLSA's test
for employee status comes from its definition of ``employ'' in 29
U.S.C. 203(g) as including to ``suffer or permit'' to work and is thus
broader than the common law test.\23\
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\21\ 366 U.S. 28, 33 (1961) (citing the FLSA's definition of
``employ,'' Silk, 331 U.S. at 713, and Rutherford Food, 331 U.S. at
729).
\22\ Id. at 32.
\23\ 503 U.S. at 326 (citing Rutherford Food, 331 U.S. at 728).
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2. Application of the Economic Reality Test by WHD and Federal Courts
of Appeals
a. WHD's Early Guidance Applying Economic Reality Test Under the FLSA
Since the Silk, Rutherford Food, and Whitaker House decisions, WHD
has applied variations of the economic reality analysis when
considering whether a worker is an employee under the FLSA or an
independent contractor, with an eye to facilitating its real-world
application by workers and businesses.
For example, on June 23, 1949, the Wage and Hour Division (WHD)
issued an opinion letter distilling six ``primary factors which the
Court considered significant'' in Rutherford Food and Silk: ``(1) the
extent to which the services in question are an integral part of the
`employer[']s' business; (2) the amount of the so-called `contractor's'
investment in facilities and equipment; (3) the nature and degree of
control by the principal; (4) opportunities for profit and loss; . . .
(5) the amount of initiative judgment or foresight required for the
success of the claimed independent enterprise[;] and [(6)] permanency
of the relation.'' \24\ The 1949 opinion letter cautioned that no
single factor is controlling, and ``[o]rdinarily a definite decision as
to whether one is an employee or an independent contractor under the
[FLSA] cannot be made in the absence of evidence as to [the worker's]
actual day-to-day working relationship with [their] principal. Clearly
a written contract does not always reflect the true situation.'' \25\
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\24\ WHD Op. Ltr. (June 23, 1949).
\25\ Id.
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Subsequent WHD opinion letters addressing employee or independent
contractor status under the FLSA have provided similar recitations of
the factors, sometimes omitting one or more of the six factors
described in the 1949 opinion letter, and sometimes adding (or
substituting) a seventh factor: the worker's ``degree of independent
business organization and operation.'' \26\ In 1964, WHD stated, ``The
Supreme Court has made it clear that an employee, as distinguished from
a person who is engaged in a business of his own, is one who as a
matter of economic reality follows the usual path of an employee and is
dependent on the business which he serves.'' \27\ Indeed, the various
factors are directed to evaluating the nature of an individual's
``dependence'' for work.
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\26\ See, e.g., WHD Op. Ltr. (Aug. 13, 1954) (applying six
factors); WHD Op. Ltr. (Oct. 12, 1965) (discussing degree of
independent business organization); WHD Op. Ltr. (Feb. 18, 1969)
(same); WHD Op. Ltr. FLSA-314 (Dec. 21, 1982) (discussing three of
the Silk factors); WHD Op. Ltr. FLSA-164 (Jan. 18, 1990) (discussing
four of the Silk factors); WHD Op. Ltr., 2000 WL 34444352, at *1
(Jul. 5, 2000) (identifying seven factors); WHD Op. Ltr., 2000 WL
34444342, at *3-6 (Dec. 7, 2000) (discussing six factors); WHD Op.
Ltr., 2002 WL 32406602, at *2-3 (Sept. 5, 2002) (same).
\27\ WHD Op. Ltr. (Sept. 30, 1964).
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In 1962, the Department revised the regulations in 29 CFR part 788,
which generally provides interpretive guidance on the FLSA's exemption
for employees in small forestry or lumbering operations, and added a
provision addressing the distinction between employees and independent
contractors.\28\ Citing to Silk, Rutherford Food, and Bartels, the
regulation advised that ``an employee, as distinguished from a person
who is engaged in a business of his own, is one who `follows the usual
path of an employee' and is dependent on the business which he
serves.'' \29\ To ``aid in assessing the total situation,'' the
regulation then identified a partial list of ``characteristics of the
two classifications which should be considered,'' including ``the
extent to which the services rendered are an integral part of the
principal's business; the permanency of the relationship; the
opportunities for profit or loss; the initiative, judgment or foresight
exercised by the one who performs the services; the amount of
investment; and the degree of control which the principal has in the
situation.'' \30\
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\28\ 27 FR 8032; see 29 U.S.C. 213(b)(28) (previously codified
at 29 U.S.C. 213(a)(15)).
\29\ 27 FR 8033 (29 CFR 788.16(a)).
\30\ Id.
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In 1972, the Department added similar guidance on independent
contractor status at 29 CFR 780.330(b), in a provision addressing the
employment status of sharecroppers and tenant farmers under the
FLSA.\31\ This regulation was nearly identical to the

[[Page 9935]]

independent contractor guidance for the logging and forestry industry
previously promulgated at 29 CFR 788.16(a), including an identical
description of the same six economic reality factors.\32\ Both
provisions--29 CFR 780.330(b) and 788.16(a)--remained unchanged until
2021.
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\31\ See 37 FR 12084, 12102 (introducing 29 CFR 780.330(b)).
\32\ Id.
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b. Federal Appellate Courts' Application of the Economic Reality Test
In the 1970s and 1980s, federal courts of appeals began to adopt
versions of a multifactor ``economic reality'' test based on Silk,
Rutherford Food, and Bartels and similar to WHD's early guidance to
analyze whether a worker was an employee or an independent contractor
under the FLSA. Drawing on the Supreme Court precedent discussed above,
courts have recognized that the heart of the inquiry is whether ``as a
matter of economic reality'' the workers are ``dependent upon the
business to which they render service.'' Usery v. Pilgrim Equip. Co.,
527 F.2d 1308, 1311 (5th Cir. 1976) (quoting Bartels, 332 U.S. at 130);
see also Mednick v. Albert Enters., Inc., 508 F.2d 297, 299-300 (5th
Cir. 1975). Courts have clarified that this question of economic
dependence may be boiled down to asking ``whether, as a matter of
economic reality, the workers depend upon someone else's business for
the opportunity to render service or are in business for themselves.''
Saleem, 854 F.3d at 139 (internal quotation marks and citations
omitted).\33\ Courts have also explained that a non-exhaustive set of
factors--derived from Silk and Rutherford Food--shape and guide this
inquiry. See, e.g., Usery, 527 F.2d at 1311 (identifying ``[f]ive
considerations [which] have been set out as aids to making the
determination of dependence, vel non''); Real v. Driscoll Strawberry
Assocs., Inc., 603 F.2d 748, 754 (9th Cir. 1979) (articulating a six-
factor test).
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\33\ See also Chavez-DeRemer v. Med. Staffing of Am., LLC, 147
F.4th 371, 397 (4th Cir. 2025); Parrish v. Premier Directional
Drilling, L.P., 917 F.3d 369, 379 (5th Cir. 2019); Keller v. Miri
Microsystems LLC, 781 F.3d 799, 807 (6th Cir. 2015); Iontchev v. AAA
Cab Serv., Inc., 685 F. App'x 548, 551 (9th Cir. 2017); Dole v.
Snell, 875 F.2d 802, 804 (10th Cir. 1989); Scantland v. Jeffry
Knight, Inc., 721 F.3d 1308, 1311 (11th Cir. 2013).
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In Driscoll, the Ninth Circuit Court of Appeals described its six-
factor test as follows: (1) the degree of the alleged employer's right
to control the manner in which the work is to be performed, (2) the
alleged employee's opportunity for profit or loss depending on his
managerial skill, (3) the alleged employee's investment in equipment or
materials required for his task, or his employment of helpers, (4)
whether the service rendered requires a special skill, (5) the degree
of permanency of the working relationship, and (6) whether the service
rendered is an integral part of the alleged employer's business. 603
F.2d at 754.
Most courts of appeals articulate a similar test, but application
between courts may vary. Compare, e.g., Sec'y of Labor v. Lauritzen,
835 F.2d 1529, 1534-35 (7th Cir. 1987) (applying six-factor economic
reality test to hold that pickle pickers were employees under the
FLSA), with Donovan v. Brandel, 736 F.2d 1114, 1117 (6th Cir. 1984)
(applying the same six-factor economic reality test to hold that pickle
pickers were not employees under the FLSA). Courts of appeal also vary
somewhat in their articulation of the factors. For example, the Second
Circuit has analyzed opportunity for profit or loss and investment (the
second and third factors listed above) together as one factor. See,
e.g., Brock v. Superior Care, Inc., 840 F.2d 1054, 1058 (2d Cir. 1988).
The Fifth Circuit has not adopted the sixth factor listed above, which
analyzes the integrality of the work, as part of its standard, see,
e.g., Usery, 527 F.2d at 1311, but has at times assessed integrality as
an additional factor, see, e.g., Hobbs v. Petroplex Pipe & Constr.,
Inc., 946 F.3d 824, 836 (5th Cir. 2020).
Some courts of appeals have made noteworthy modifications to the
economic reality factors as originally articulated in 1947 by the
Supreme Court.\34\ First, the ``skill required'' factor identified in
Silk, 331 U.S. at 716, is now articulated more expansively by some
courts to include ``initiative.'' See, e.g., Parrish, 917 F.3d at 379
(considering ``the skill and initiative required in performing the
job''); Karlson, 860 F.3d at 1093 (same); Superior Care, 840 F.2d at
1058-59 (considering ``the degree of skill and independent initiative
required to perform the work'').
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\34\ See 85 FR 60603-04.
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Second, Silk analyzed workers' investments, 331 U.S. at 717-19.
However, the Fifth Circuit has revised the ``investment'' factor to
instead consider ``the extent of the relative investments of the worker
and the alleged employer.'' Hopkins v. Cornerstone America, 545 F.3d
338, 343 (5th Cir. 2008). Some other circuits also apply this
``relative investment'' approach but continue to use the phrase
``worker's investment'' to describe the factor. See, e.g., Keller, 781
F.3d at 810; Snell, 875 F.2d at 805, 810.
Third, although the permanence factor under Silk was understood to
mean the continuity and duration of working relationships, see 12 FR
7967, some courts of appeals have expanded this factor to also consider
the exclusivity of such relationships. See, e.g., Scantland, 721 F.3d
at 1319; Keller, 781 F.3d at 807.
Finally, Rutherford Food's consideration of whether work is ``part
of an integrated unit of production,'' 331 U.S. at 729, has now been
replaced by many courts of appeals by consideration of whether the
service rendered is ``integral,'' which those courts have applied as
meaning important or central to the potential employer's business. See,
e.g., Verma v. 3001 Castor, Inc., 937 F.3d 221, 232 (3rd Cir. 2019)
(concluding that workers' services were integral because they were the
providers of the business's ``primary offering''); Acosta v. Off Duty
Police Servs., Inc., 915 F.3d 1050, 1055 (6th Cir. 2019) (concluding
that services provided by workers were ``integral'' because the
potential employer ``built its business around'' those services);
McFeeley v. Jackson Street Entertainment, LLC, 825 F.3d 235, 244 (4th
Cir. 2016) (considering ``the importance of the services rendered to
the company's business'').
Courts of appeals have cautioned against the ``mechanical
application'' of the economic reality factors. See, e.g., Saleem, 854
F.3d at 139. ``Rather, each factor is a tool used to gauge the economic
dependence of the alleged employee, and each must be applied with this
ultimate concept in mind.'' Hopkins, 545 F.3d at 343. Further, courts
of appeals make clear that the analysis should draw from the totality
of circumstances, with no single factor being determinative by itself.
See, e.g., Keller, 781 F.3d at 807 (``No one factor is
determinative.''); Baker v. Flint Eng'g & Constr. Co., 137 F.3d 1436,
1441 (10th Cir. 1998) (``None of the factors alone is dispositive;
instead, the court must employ a totality-of-the-circumstances
approach.'').
c. The Department's More Recent Application of the Economic Reality
Test Under the FLSA, FMLA, and MSPA
In 1995, the Department promulgated a regulation at 29 CFR
825.105(a) addressing employee status under the FMLA and the
distinction between employees and independent contractors.\35\ The
regulation currently explains that ``[t]he definition of employ for
purposes of FMLA is taken from the Fair Labor Standards Act, Sec.
3(g), 29 U.S.C. 203(g),'' meaning a broader scope

[[Page 9936]]

of employment than at the common law.\36\ The regulation further
explains that determining employee status ``depends `upon the
circumstances of the whole activity' including the underlying `economic
reality.' '' \37\ The regulation adds that: ``In general an employee,
as distinguished from an independent contractor who is engaged in a
business of his/her own, is one who `follows the usual path of an
employee' and is dependent on the business which he/she serves.'' \38\
The regulation does not provide any specific economic reality factors
to apply. A separate regulation, 29 CFR 825.102, defines various terms
under the FMLA, and consistent with the FMLA's adoption of the FLSA's
statutory definitions, defines ``employ'' to mean ``to suffer or permit
to work'' and ``employee'' to generally mean ``any individual employed
by an employer.''
---------------------------------------------------------------------------

\35\ See 60 FR 2240.
\36\ 29 CFR 825.105(a); see also 29 U.S.C. 2611(3).
\37\ 29 CFR 825.105(a).
\38\ Id.
---------------------------------------------------------------------------

In 1997, the Department promulgated a regulation applying a
multifactor economic reality analysis for distinguishing between
employees and independent contractors under MSPA, which--like the
FMLA--statutorily adopts the FLSA's ``suffer or permit'' definition of
employment by reference.\39\ The regulation explains that ``[t]he
definition of the term employ may include consideration of whether or
not an independent contractor or employment relationship exists under
the Fair Labor Standards Act.'' \40\ The regulation advises that in
determining if the farm labor contractor or worker is an employee or an
independent contractor, the ultimate question is the economic reality
of the relationship--whether there is economic dependence upon the
agricultural employer/association or farm labor contractor, as
appropriate.\41\ The regulation elaborates that ``[t]his determination
is based upon an evaluation of all of the circumstances, including the
following: (i) The nature and degree of the putative employer's control
as to the manner in which the work is performed; (ii) The putative
employee's opportunity for profit or loss depending upon his/her
managerial skill; (iii) The putative employee's investment in equipment
or materials required for the task, or the putative employee's
employment of other workers; (iv) Whether the services rendered by the
putative employee require special skill; (v) The degree of permanency
and duration of the working relationship; (vi) The extent to which the
services rendered by the putative employee are an integral part of the
putative employer's business.'' \42\ This description of six economic
reality factors is very similar to the earlier description of the six
factors test to evaluate the economic reality, that is an individual's
economic dependence for work, on a putative employer, provided in 29
CFR 780.330(b) and 788.16(a).
---------------------------------------------------------------------------

\39\ See 62 FR 11734, 11747; see also 29 U.S.C. 1802(5) (``The
term `employ' has the meaning given such term under section 3(g) of
the [FLSA]'').
\40\ 29 CFR 500.20(h)(4).
\41\ Id.
\42\ Id.
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Also in 1997, WHD issued Fact Sheet #13, ``Employment Relationship
Under the Fair Labor Standards Act (FLSA).'' \43\ Like WHD opinion
letters, Fact Sheet #13 advises that an employee, as distinguished from
a person who is engaged in a business of their own, is one who, as a
matter of economic reality, follows the usual path of an employee and
is dependent on the business which he or she serves. The fact sheet
identifies six familiar economic realities factors, as well as
consideration of the worker's degree of independent business
organization and operation.
---------------------------------------------------------------------------

\43\ See WHD Fact Sheet #13 (1997), https://web.archive.org/web/19970112162517/http:/www.dol.gov/dol/esa/public/regs/compliance/whd/whdfs13.htm. WHD made minor revisions to Fact Sheet #13 in 2002 and
2008, before a more substantial revision in 2014. In 2018, WHD
reverted back to the 2008 version of Fact Sheet #13, which the
Department is currently applying (available at https://www.dol.gov/sites/dolgov/files/WHD/fact-sheets/whdfs13.pdf).
---------------------------------------------------------------------------

On July 15, 2015, WHD issued Administrator's Interpretation No.
2015-1, ``The Application of the Fair Labor Standards Act's `Suffer or
Permit' Standard in the Identification of Employees Who Are
Misclassified as Independent Contractors'' (AI 2015-1).\44\ AI 2015-1
explained that, ``under the FLSA, courts use the multi-factorial
`economic realities' test, which focuses on whether the worker is
economically dependent on the employer or in business for him or
herself,'' and it identified and provided guidance regarding the
application of six economic realities factors. AI 2015-1 further
explained that its FLSA analysis ``should also be applied in
determining whether a worker is an employee or an independent
contractor in cases arising under [MSPA] and the [FMLA]'' because both
statutes adopt the FLSA's definition of ``employ.''
---------------------------------------------------------------------------

\44\ AI 2015-1 was withdrawn on June 7, 2017, and is no longer
in effect.
---------------------------------------------------------------------------

In 2019, WHD issued an opinion letter, FLSA2019-6 (later
redesignated as FLSA2025-2),\45\ addressing whether service providers
who used a ``virtual marketplace'' company to be referred to end-market
consumers were employees or independent contractors of the virtual
marketplace company under the FLSA. The opinion letter generally
applied principles and factors similar to those described in the prior
opinion letters and the 2008 version of Fact Sheet #13, but not the
``independent business organization'' factor because it did not add to
the analysis as a separate factor and was ``[e]ncompassed within'' the
other factors. WHD Opinion Letter FLSA2025-2 at 5. It also stated that
the investment factor should focus on the ``amount of the worker's
investment in facilities, equipment, or helpers.'' Id. Based on the
facts provided, WHD concluded that the service providers at issue
appeared to be independent contractors and not employees of the virtual
marketplace company. WHD found that it was ``inherently difficult to
conceptualize the service providers' `working relationship' with [the
virtual marketplace company], because as a matter of economic reality,
they are working for the consumer, not [the company].'' Id. at 7-8.
Because ``[t]he facts . . . demonstrate economic independence, rather
than economic dependence, in the working relationship between [the
virtual marketplace company] and its service providers,'' WHD opined
that they were not employees of the company under the FLSA but rather
were independent contractors. Id. at 11.
---------------------------------------------------------------------------

\45\ WHD withdrew WHD Opinion Letter FLSA2019-6 on February 19,
2021, but reissued the opinion letter on May 2, 2025, redesignating
it as Opinion Letter FLSA2025-2, available at https://www.dol.gov/sites/dolgov/files/WHD/opinion-letters/FLSA/FLSA2019-6.pdf.
---------------------------------------------------------------------------

C. The 2021 Rule

On January 7, 2021, the Department published a final rule (2021
Rule) which--for the first time--organized and distilled the
longstanding economic reality factors into practical regulatory
guidance for workers and business to aid the proper classification of
employees and independent contractors under the FLSA for use in any
industry.\46\ The Department explained that the 2021 Rule was intended
to combine longstanding legal and judicial frameworks in a practicable
package that could be broadly applied in workplaces across the nation--
promoting certainty for stakeholders, reducing litigation, and
encouraging innovation in the economy.
---------------------------------------------------------------------------

\46\ See Dep't of Labor, Independent Contractor Status Under the
Fair Labor Standards Act, Final Rule, 86 FR 1168 (Jan. 7, 2021).
---------------------------------------------------------------------------

In the 2021 Rule, the Department affirmed the ``economic reality''
test under the FLSA to determine whether a worker is in business for
himself or

[[Page 9937]]

herself (an independent contractor) or is instead economically
dependent on an employer for work, as an employee conventionally
depends on his employer for work.\47\ The Department framed five
familiar ``factors,'' drawn from the longstanding approach articulated
by the Supreme Court and courts of appeals, to ``guide the
determination'' of workers' ``economic reality.'' Like the components
of those tests, the Department explained that the ``factors are not
exhaustive'' and ``no single factor is dispositive.'' \48\ Based on its
experience and case law, the Department further identified two of those
factors (the nature and degree of control over the work and the
individual's opportunity for profit or loss) as ``core'' factors that,
across a wide spectrum of work arrangements, are ``the most probative
as to whether or not an individual is an economically dependent
`employee' '' and ``therefore typically carr[y] greater weight in the
analysis than any other factor.'' \49\ The Department added that,
``[g]iven these two core factors' greater probative value, if they both
point towards the same classification, whether employee or independent
contractor, there is a substantial likelihood that is the individual's
accurate classification.'' \50\ Similarly, the Department explained
that other factors are ``less probative and, in some cases, may not be
probative at all'' in answering the ultimate ``economic reality''
inquiry to which these tests are directed. Typically, these other
factors ``are highly unlikely, either individually or collectively, to
outweigh the combined probative value of the two core factors.'' \51\
---------------------------------------------------------------------------

\47\ 86 FR 1246 (Sec. 795.105(b)).
\48\ 86 FR 1246 (Sec. 795.105(c)).
\49\ Id.
\50\ Id.
\51\ Id.
---------------------------------------------------------------------------

The Department provided guidance in the 2021 Rule on how to apply
the control and opportunity for profit or loss factors, including that
an individual's opportunity for profit or loss could be based on ``his
or her exercise of initiative (such as managerial skill or business
acumen or judgment) or management of his or her investment in or
capital expenditure on, for example, helpers or equipment or material
to further his or her work.'' \52\ The Department identified three
other factors to be considered with the two core factors and provided
guidance on each: the amount of skill required for the work, the degree
of permanence of the working relationship between the individual and
the potential employer, and whether the work is part of an integrated
unit of production.\53\ The Department added that ``[a]dditional
factors may be relevant in determining whether an individual is an
employee or independent contractor for purposes of the FLSA, but only
if the factors'' are directly material to the ``economic reality''
inquiry that determines whether an individual's relationship with a
potential employer is more akin to that of another business or an
employee.\54\ The Department further advised that, when applying the
factors, ``the actual practice of the parties involved is more relevant
than what may be contractually or theoretically possible.'' \55\ The
Department also provided six ``illustrative examples'' of how the
factors may be applied in certain factual situations.\56\ And, the
Department included a severability provision explaining that the
Department would still give ``maximum effect'' to the rule in the event
that any of its provisions are enjoined or invalidated.\57\
---------------------------------------------------------------------------

\52\ 86 FR 1246-47 (Sec. 795.105(d)(1)(i)-(ii)).
\53\ 86 FR 1247 (Sec. 795.105(d)(2)(i)-(iii)).
\54\ 86 FR 1247 (Sec. 795.105(d)(2)(iv)).
\55\ 86 FR 1247 (Sec. 795.110).
\56\ 86 FR 1247-48 (Sec. 795.115).
\57\ 86 FR 1248 (Sec. 795.120).
---------------------------------------------------------------------------

In the 2021 Rule, the Department also revised the industry-specific
guidance provided at 29 CFR 780.330(b) (addressing the employment
status of sharecroppers and tenant farmers) and 788.16(a) (workers in
forestry or logging). The Department replaced the recitation of the six
economic reality factors identified in those regulatory subsections
with cross-references to the 2021 Rule's updated and generally
applicable guidance.\58\
---------------------------------------------------------------------------

\58\ 86 FR 1246.
---------------------------------------------------------------------------

Finally, the 2021 Rule noted that the Department had received
several comments addressing the possibility of applying that rule's
analysis to determining employee or independent contractor status under
MSPA, including by revising 29 CFR 500.20(h)(4).\59\ The Department
recognized in the 2021 Rule that ``MSPA adopts by reference the FLSA's
definition of `employ,' see 18 U.S.C. 1802(5), and that 29 CFR
500.20(h)(4) considers `whether or not an independent contractor or
employment relationship exists under the Fair Labor Standards Act' to
interpret independent contractor status under MSPA.'' \60\ The
Department added that ``the regulatory standard for determining an
individual's classification status under MSPA is generally consistent
with the FLSA guidance finalized in this rule.'' \61\ The Department
determined at the time that it did ``not see a compelling need to
revise'' the MSPA regulation because it was ``unsure whether
application of the six factor economic reality test described in that
regulation has resulted in confusion and uncertainty in the more
limited MSPA context similar to that described in the FLSA context.''
\62\ The Department concluded that it ``prefers to proceed
incrementally at this time by leaving the MSPA regulation at 29 CFR
500.20(h)(4) unchanged.'' \63\
---------------------------------------------------------------------------

\59\ 86 FR 1177.
\60\ Id.
\61\ Id.
\62\ Id.
\63\ Id.
---------------------------------------------------------------------------

The effective date of the 2021 Rule was March 8, 2021.

D. Attempts To Delay and Withdraw the 2021 Rule

On March 4, 2021, the Department published a final rule (Delay
Rule) delaying the effective date of the 2021 Rule until May 7, 2021--
60 days after its original March 8, 2021, effective date.\64\ The Delay
Rule stated that it took effect immediately upon its publication in the
Federal Register.\65\ On May 6, 2021, the Department published a final
rule withdrawing the 2021 Rule (Withdrawal Rule).\66\ The Withdrawal
Rule stated that it took effect immediately upon its publication in the
Federal Register.\67\
---------------------------------------------------------------------------

\64\ See Dep't of Labor, Independent Contractor Status Under the
Fair Labor Standards Act (FLSA): Delay of Effective Date, 86 FR
12535 (Mar. 4, 2021).
\65\ See id. at 12537.
\66\ See Dep't of Labor, Independent Contractor Status Under the
Fair Labor Standards Act (FLSA): Withdrawal, 86 FR 24303 (May 6,
2021).
\67\ See id. at 24320.
---------------------------------------------------------------------------

On March 14, 2022, in a lawsuit challenging the Department's Delay
and Withdrawal Rules under the Administrative Procedure Act (APA), a
district court in the Eastern District of Texas issued a decision
vacating the Department's Delay and Withdrawal Rules. See Coalition for
Workforce Innovation v. Walsh, No. 1:21-CV-130, 2022 WL 1073346 (E.D.
Tex. Mar. 14, 2022) (CWI Decision). While acknowledging that the
Department engaged in separate notice-and-comment rulemakings in
promulgating both of these rules, the district court concluded that the
Department ``failed to provide a meaningful opportunity for comment in
promulgating the Delay Rule,'' id. at *9,\68\ failed to show ``good

[[Page 9938]]

cause for making the [Delay Rule] effective immediately upon
publication,'' id. at *11, and acted in an arbitrary and capricious
manner in its Withdrawal Rule by ``fail[ing] to consider potential
alternatives to rescinding the [2021] Rule,'' id. at *13. Accordingly,
the district court vacated the Delay and Withdrawal Rules and ruled
that the 2021 Rule ``became effective as of March 8, 2021, the rule's
original effective date, and remains in effect.'' Id. at *20.
---------------------------------------------------------------------------

\68\ The district court specifically faulted the Department's
use of a shortened 19-day comment period (instead of 30 days) in its
proposal to delay the 2021 Rule's original effective date, and for
failing to consider comments beyond its proposal to delay the 2021
Rule's effective date. 2022 WL 1073346, at *7-10.
---------------------------------------------------------------------------

The Department filed a notice of appeal of the district court's
decision to the Fifth Circuit Court of Appeals. See Coal. for Workforce
Innovation v. Su, No. 22-40316 (5th Cir. appeal filed, May 13, 2022).
The Fifth Circuit entered successive orders staying the appeal while
the Department engaged in further rulemaking. Once the Department's
further rulemaking concluded, the Fifth Circuit dismissed the appeal,
vacated the district court's decision as moot, and remanded the case to
the district court. See No. 22-40316, 2024 WL 2108472 (5th Cir. Feb.
19, 2024).

E. The 2024 Rule

On January 10, 2024, the Department published a final rule (2024
Rule) to rescind the 2021 Rule and replace it with a modified analysis
for determining employee or independent contractor classification under
the FLSA, which is currently set forth in 29 CFR part 795.\69\ Like the
2021 Rule, the 2024 Rule advises that the FLSA's ``definitions are
meant to encompass as employees all workers who, as a matter of
economic reality, are economically dependent on an employer for work,''
elaborating that ``[a] worker is an independent contractor, as
distinguished from an `employee' under the [FLSA], if the worker is, as
a matter of economic reality, in business for themself.'' \70\ The 2024
Rule identifies six factors as ``tools or guides to conduct a totality-
of-the-circumstances analysis'': (1) opportunity for profit or loss
depending on managerial skill, (2) investments by the worker and the
potential employer, (3) degree of permanence of the work relationship,
(4) nature and degree of control, (5) extent to which the work
performed is an integral part of the potential employer's business, and
(6) skill and initiative.\71\ The 2024 Rule does not identify any core
factors or otherwise elaborate on the relative importance of these
factors, advising instead that ``no one factor or subset of factors is
necessarily dispositive'' and ``the weight to give each factor may
depend on the facts and circumstances of the particular relationship.''
\72\ The Department added that the six factors ``are not exhaustive''
and ``[a]dditional factors may be relevant in determining whether the
worker is an employee or independent contractor for purposes of the
FLSA, if the factors in some way indicate whether the worker is in
business for themself, as opposed to being economically dependent on
the potential employer for work.'' \73\ The 2024 Rule advises that the
outcome of its analysis ``does not depend on isolated factors but
rather upon the circumstances of the whole activity to answer the
question of whether the worker is economically dependent on the
potential employer for work or is in business for themself.'' \74\
---------------------------------------------------------------------------

\69\ See Dep't of Labor, Employee or Independent Contractor
Classification Under the Fair Labor Standards Act, Final Rule, 89 FR
1638 (Jan. 10, 2024).
\70\ 29 CFR 795.105(b).
\71\ 29 CFR 795.110(a)(1), (b)(1)-(6).
\72\ 29 CFR 795.110(a)(2).
\73\ 29 CFR 795.110(a)(2), (b)(7).
\74\ 29 CFR 795.110(a)(1).
---------------------------------------------------------------------------

In addition, the Department made minor revisions to the industry-
specific guidance provided at 29 CFR 780.330(b) and 788.16(a) by
updating the cross-references to 29 CFR part 795 that the 2021 Rule had
added.\75\ Also, like the 2021 Rule, the Department included a
severability provision in the 2024 Rule.\76\
---------------------------------------------------------------------------

\75\ See 89 FR 1741.
\76\ See 29 CFR 795.115.
---------------------------------------------------------------------------

Like in the 2021 Rule, the Department in the 2024 Rule ``did not
propose to make any revisions to the MSPA regulation, which adopts by
reference the FLSA's definition of `employ,' and considers `whether or
not an independent contractor or employment relationship exists under
the Fair Labor Standards Act' to interpret employee or independent
contractor status under MSPA.'' \77\ The Department explained that the
guidance provided in the MSPA regulation is ``substantially similar''
to the economic reality test adopted by the 2024 Rule, the comments
received did not address MSPA, and the Department ``is not revising the
MSPA regulation at this time.'' \78\
---------------------------------------------------------------------------

\77\ 89 FR 1664.
\78\ Id.
---------------------------------------------------------------------------

Unlike the 2021 Rule, the 2024 Rule's regulatory text does not
include any illustrative examples of how to apply the economic reality
test or address the relevance of parties' actual practice as compared
to what may be contractually or theoretically possible. However, the
Department provided examples of how to apply each economic reality
factor and addressed the actual practice issue in the 2024 Rule's
preamble.\79\
---------------------------------------------------------------------------

\79\ See 89 FR 1718-22 (discussing the relevance of actual
practice); see also 89 FR 1722-24 (discussing commenter feedback on
illustrative examples provided in the preamble of the Department's
2022 Notice of Proposed Rulemaking).
---------------------------------------------------------------------------

The 2024 Rule took effect on March 11, 2024.

F. Litigation Challenging the 2024 Rule and WHD's 2025 Field Assistance
Bulletin

Five lawsuits were filed challenging the legality of the 2024 Rule.
Each lawsuit remains pending, although each has been stayed based on
the Department's representation that it intends to reconsider the 2024
Rule, including whether to issue a notice of proposed rulemaking to
rescind the rule.
In Frisard's Transportation, L.L.C. v. Department of Labor, the
district court denied a motion for temporary restraining order and
preliminary injunction that sought to enjoin the 2024 Rule because the
trucking companies and business association challenging the 2024 Rule
failed to meet their burden of showing irreparable harm. See Dkt. No.
19, No. 2:24-cv-00347-EEF-MBN (E.D. La. Mar. 8, 2024). The trucking
companies and business association appealed the denial of preliminary
injunction to the Fifth Circuit Court of Appeals, and the district
court later stayed its proceedings. The Fifth Circuit has stayed the
appeal.
In Warren v. Department of Labor, the district court ruled in favor
of the Department without addressing the legality of the 2024 Rule,
concluding that the freelancers challenging the 2024 Rule do not have
standing to do so. See Dkt. No. 42, No. 2:24-CV-7-RWS (N.D. Ga. Oct. 7,
2024). The freelancers appealed to the Eleventh Circuit Court of
Appeals, which has stayed the appeal.
In Colt & Joe Trucking, LLC v. Department of Labor, the district
court ruled in favor of the Department, concluding that the trucking
company challenging the 2024 Rule does not have standing to do so and
also rejecting its various arguments that the 2024 Rule is unlawful.
See No. 24-cv-00391-KWR-GBW, 2025 WL 56658 (D.N.M. Jan. 9, 2025). The
trucking company appealed to the Tenth Circuit Court of Appeals, which
has stayed the appeal.
In Littman v. Department of Labor, the district court ruled in
favor of the Department without addressing the legality of the 2024
Rule, affirming the magistrate judge's report and recommendation that
found that the

[[Page 9939]]

freelancers challenging the 2024 Rule do not have standing to do so.
See No. 3:24-cv-00194, 2025 WL 763583 (M.D. Tenn. Mar. 11, 2025). The
freelancers appealed to the Sixth Circuit Court of Appeals, and that
appeal has been stayed by the court's Mediation Office.
In Coalition for Workforce Innovation v. Walsh, the business
associations that had challenged the Delay and Withdrawal Rules amended
their complaint following remand to challenge the 2024 Rule. Dkt. No.
40, No. 1:21-CV-130 (E.D. Tex. Mar. 5, 2024). In 2024, the business
associations filed a motion for summary judgment arguing that the 2024
Rule is unlawful, and the Department filed a cross-motion arguing that
the case should be dismissed for lack of standing and that it should be
granted summary judgment because the 2024 Rule is lawful. The parties
fully briefed the motions, and the district court later stayed the
case.
On May 1, 2025, WHD published Field Assistance Bulletin (FAB) No.
2025-1, providing enforcement guidance in FLSA cases.\80\ FAB No. 2025-
1 explained that the Department has taken the position in the lawsuits
challenging the 2024 Rule that it is reconsidering the rule, including
whether to rescind it. The FAB added that ``WHD is currently reviewing
and developing the appropriate standard for determining FLSA employee
versus independent contractor status,'' and advised WHD staff that
``WHD will no longer apply the 2024 Rule's analysis when determining
employee versus independent contractor status in FLSA investigations.''
In its place, ``WHD will enforce the FLSA in accordance with [the 2008
version of Fact Sheet #13], and as further informed by [WHD Opinion
Letter FLSA2025-2] with respect to any matters for which no payment has
been made, directly to individuals or to DOL, for back wages and/or
civil money penalties as of May 1, 2025.'' FAB No. 2025-1 noted that,
``[u]ntil further action is taken, the 2024 Rule remains in effect for
purposes of private litigation and nothing in this FAB changes the
rights of employees or responsibilities of employers under the FLSA.''
---------------------------------------------------------------------------

\80\ The FAB is available at https://www.dol.gov/sites/dolgov/files/WHD/fab/fab2025-1.pdf.
---------------------------------------------------------------------------

II. Need for Rulemaking

The Department is concerned that the 2024 Rule broadens and
generalizes a variation of the longstanding legal analysis in ways that
complicate and frustrate its application by workers and businesses.
Repeated emphasis on the ``whole activity'' and little direction
regarding how its factors should be used to answer the ultimate
question resulted in a rule that fails to provide an analysis for
distinguishing between independent contractors and employees under the
FLSA that is sufficiently clear and leads to predictable outcomes. The
Department is separately concerned that the 2024 Rule's description of
several economic reality factors could be viewed as setting a higher
bar to find independent contractor status than the law requires. Among
other harms, an open-ended balancing analysis of six ambiguous elements
can deter businesses from engaging with bona fide independent
contractors or induce them intentionally to unnecessarily classify such
contractors as employees. Indeed, these and other concerns have been
emphasized by many self-identified independent contractors who have
participated in the Department's recent rulemakings on this topic. The
Department believes that replacing the 2024 Rule with a modified and
updated 2021 Rule would avoid this outcome and facilitate the more
accurate and predictable classification of individuals, with a familiar
and clear analysis drawn from established case law that is more
amenable to the modern economy and fully effective in preventing the
misclassification of employees. In particular, and as explained in
greater detail in section III.E. of this NPRM, the Department believes
that the 2021 Rule's elevation of control and opportunity as ``core''
factors in the analysis used to identify independent contractors better
aligns with the Supreme Court's original application of the economic
reality test, as well as the ordinary understanding of being in
business for oneself. Accordingly, in this rulemaking, the Department
is proposing to rescind the 2024 Rule and readopt the analysis provided
in the 2021 Rule, with a few modifications, which the Department has
successfully applied in WHD investigations.\81\ For the reasons
provided herein, the Department believes this proposed analysis
represents the best construction of the FLSA with respect to whether an
individual is an independent contractor or an employee.
---------------------------------------------------------------------------

\81\ WHD began applying the 2021 Rule's analysis after the CWI
Decision (issued on March 14, 2022) in its FLSA cases involving work
performed by an alleged independent contractor from March 8, 2021,
to March 10, 2024 (i.e., from the 2021 Rule's intended effective
date until its rescission by the 2024 Rule).
---------------------------------------------------------------------------

A. Concerns That the 2024 Rule Fails To Provide Needed Clarity

The principal flaw of the 2024 Rule is its failure to provide
effective guidance on how different factors in its multi-factor
balancing test should be weighed or applied together. In the absence of
such guidance, engaging individuals as independent contractors could be
confusing and risky when different factors point to different
classification outcomes. Imagine, for example, that a company is
evaluating its longstanding relationship with an individual who works
from home, has the ability to accept or decline any project without
repercussion, sets her own schedule, and negotiates her compensation
with the company as well as several other companies with which she
works. Under the 2024 Rule, some economic reality factors in this
scenario might indicate that the individual is an independent
contractor--i.e., the company's lack of control over her, her
opportunity for profit and loss, and her skill and business-like
initiative.\82\ However, other factors might indicate an employment
relationship--i.e., her work may be an ``integral part'' of the
company's business,\83\ the parties have a ``continuous'' (though non-
exclusive) relationship,\84\ and the individual may lack significant
investments (at least in comparison to the company's ``investments in
its overall business'').\85\ In this scenario, although the individual
may well be an independent contractor under the 2024 Rule, that outcome
may be uncertain because the factors point in different directions and
``the weight to give each factor may depend on the facts and
circumstances of the particular relationship.'' \86\ Accordingly, the
company might believe that engagement of the individual would require
classification of the individual as an employee under the FLSA (which
may or may not be possible given both the business's and the
individual's circumstances), given that the 2024 Rule lacks clear
guidance on how to weigh the factors, repeatedly emphasizing the
totality not only of the six factors but all potentially relevant
considerations. One can point to a myriad of additional scenarios
involving workers who are in business for themselves (and thus are bona
fide independent contractors), but where two or more factors from the
2024 Rule arguably indicate an employment relationship, particularly in
industries where those workers are ``integral'' to the businesses in
those industries.
---------------------------------------------------------------------------

\82\ See 29 CFR 795.110(b)(1), (4), (6).
\83\ 29 CFR 795.110(b)(5).
\84\ See 29 CFR 795.110(b)(3).
\85\ See 29 CFR 795.110(b)(2).
\86\ 29 CFR 795.110(a)(2).
---------------------------------------------------------------------------

As Judge Frank Easterbrook noted in 1987, ```[economic] reality'
encompasses millions of facts, and unless we have a

[[Page 9940]]

legal rule with which to sift the material from the immaterial, we
might as well examine the facts through a kaleidoscope. Which facts
matter, and why? A legal approach calling on judges to examine all of
the facts, and balance them, avoids formulating a rule of decision.''
\87\ It is precisely this ambiguity that motivated the Department to
initially propose regulatory guidance for analyzing employee or
independent contractor status under the FLSA in 2020.\88\ In that
rulemaking, after reviewing decades of judicial decisions applying Silk
and Rutherford, the Department determined that courts tended to focus
on two economic reality factors--control and the opportunity for profit
or loss. The Department determined that courts tended to treat the
direction in which they pointed as a reliable indicator of employee or
independent contractor status, effectively--if not formally--giving
them more weight and an elevated status. As the Department explained,
control and opportunity ``strike at the core of what it means to be in
business for oneself.'' \89\ It is logical that those factors would and
should have more weight in assessing the legality of an independent
contractor arrangement than the ancillary considerations regarding the
skill of the individual worker at issue, the permanency of the
individual's relationship with a particular business, and whether the
work is an ``integral part'' of that business.\90\
---------------------------------------------------------------------------

\87\ Sec'y of Labor v. Lauritzen, 835 F.2d 1529, 1539 (7th Cir.
1987) (Easterbrook, J., concurring).
\88\ For example, Judge Easterbrook has generally observed that
``[u]nless some obstacle such as inexperience with the subject, a
dearth of facts, or a vacuum in the statute books intervenes, we
should be able to attach legal consequences to recurrent factual
patterns. Courts have had plenty of experience with the application
of the FLSA to migrant farm workers. Fifty years after the Act's
passage is too late to say that we still do not have a legal rule to
govern these cases.'' Id.
\89\ 86 FR 1199. The 2021 Rule reflected thoughtful analysis of
the caselaw that has situated the core of the employee vs.
independent contractor analysis in the control and opportunity for
profit and loss factors. The 2024 Rule does not cite a single case
where these two core factors (when pointing to the same
classification) were overridden.
\90\ See 86 FR 1196-97.
---------------------------------------------------------------------------

In the Department's recent rulemakings on this topic, numerous
self-identified independent contractors and businesses that engage
independent contractors commented positively on the 2021 Rule for its
identification of control and opportunity as ``core'' factors in the
FLSA's multi-factor economic reality test.\91\ As a policy matter,
these commenters asserted that the Department's identification of core
factors brought helpful clarity and assurance. In the 2024 Rule, the
Department largely rejected such policy arguments, believing that
identifying ``core'' and ``non-core'' factors ``would . . . likely
[cause] confusion and uncertainty'' if left in place.\92\ Upon
reconsideration, the Department finds compelling the sentiment
expressed by workers and businesses who did not share that view and
sought added clarity in how different factors from the economic reality
test should be balanced in predictable ways. As described in greater
detail in section III of this NPRM, the Department can apply an
economic reality test grounded in federal case law that provides more
clarity to interested stakeholders than an unguided ``totality-of-the-
circumstances analysis'' in which ``the weight to give each factor may
depend on the facts and circumstances of the particular relationship.''
\93\ In advising the public on how it intends to weigh different
economic reality factors, the Department can and should do better than
``it depends.'' Grossbaum v. Indianapolis-Marion Cnty. Bldg. Auth., 100
F.3d 1287, 1299 (7th Cir. 1996) (noting Judge Easterbrook's observation
that real world actors need guidance ahead of time rather than
critiques afterward).
---------------------------------------------------------------------------

\91\ See 86 FR 1197 (2021 Rule); 86 FR 24308-09 (Withdrawal
Rule); 89 FR 1650, 1666-67 (2024 Rule).
\92\ 89 FR 1654.
\93\ 29 CFR 795.110(a)(2).
---------------------------------------------------------------------------

The Department is additionally concerned that the 2024 Rule
features numerous redundancies in its description of the different
factors, which the 2021 Rule sought to eliminate to facilitate the
proper, clear, and reliable application of the analysis. For example,
the phrases ``managerial skill (including initiative or business acumen
or judgment),'' ``business-like initiative,'' and ``independent
business initiative'' appear in the guidance provided for three
different factors in the 2024 Rule.\94\ Both the ``control'' and the
``opportunity for profit or loss'' factors consider whether the worker
determines or negotiates their pay.\95\ The ``opportunity'' factor
considers ``whether the worker makes decisions to hire others, purchase
materials and equipment, and/or rent space,'' \96\ despite a separate
factor examining ``evidence of capital or entrepreneurial investment.''
\97\ The control factor examines ``whether the potential employer . . .
explicitly limits the worker's ability to work for others'' or ``places
demands or restrictions on workers that do not allow them to work for
others,'' \98\ while the ``permanence'' factor separately inquires
whether ``the work relationship is . . . exclusive of work for other
employers.'' \99\ Finally, the ``permanence'' factor states in circular
fashion that an impermanent work arrangement is only indicative of
independent contractor status if it is ``based on the worker being in
business for themself,'' \100\ which of course is the overarching
inquiry of the economic reality test.\101\ And, the factor further
states that a worker must be ``marketing their services or labor to
multiple entities'' for an impermanent relationship to be indicative of
independent contractor status, when ``whether the worker engages in
marketing, advertising, or other efforts to expand their business or
secure more work'' is separately considered under the 2024 Rule's
``opportunity'' factor.\102\
---------------------------------------------------------------------------

\94\ 29 CFR 795.110(b)(1), (3), and (6).
\95\ Compare 29 CFR 795.110(b)(1) (examining ``whether the
worker determines or can meaningfully negotiate the charge or pay
for the work provided'') with id. at 795.110(b)(4) (examining
``control over prices or rates for services . . . provided by the
worker'').
\96\ 29 CFR 795.110(b)(1).
\97\ 29 CFR 795.110(b)(2).
\98\ 29 CFR 795.110(b)(4).
\99\ 29 CFR 795.110(b)(3). The 2024 Rule also addressed ability
to work for others in its preamble discussion of the ``investments''
factor. See 89 FR 1681 (``A worker's investments are most likely to
be capital or entrepreneurial in nature if they create or further
the worker's ability to work for multiple employers.'').
\100\ 29 CFR 795.110(b)(3).
\101\ 29 CFR 795.110(a)(1) (advising that employee or
independent contractor status turns on ``whether the worker is
economically dependent on the potential employer for work or is in
business for themself'').
\102\ 29 CFR 795.110(b)(1). Marketing is also arguably an
example of ``business-like initiative,'' a required element of the
``skill and initiative'' factor in 29 CFR 795.110(b)(6).
---------------------------------------------------------------------------

The Department acknowledged in the preamble of the 2024 Rule that
``certain relevant facts may overlap among the factors,'' but explained
that it ``does not wish to be overly prescriptive'' about such overlap
for fear of establishing ``a formulaic or rote analysis'' that would
not be ``flexible enough to apply to all kinds of work, and all kinds
of workers.'' \103\ While some degree of factual overlap may be
inevitable in a multifactor analysis, the Department now believes that
the 2024 Rule crosses the line from natural overlap into unhelpful
repetition--particularly where the same concepts (such as ``business
initiative'') are presented as required elements of multiple factors
and are applied for different purposes. These redundancies risk
confusing businesses and workers alike, creating uncertainty about
whether the same considerations must be counted

[[Page 9941]]

multiple times or weighed differently depending on the factor in which
they appear. The Department believes that a more concise articulation
of each factor, with a clearer delineation of which considerations are
most relevant to each, would enhance the clarity and utility of the
Department's regulatory guidance on the economic reality test.
---------------------------------------------------------------------------

\103\ 89 FR 1670.
---------------------------------------------------------------------------

Ultimately, the Department is concerned that the framework set
forth in the 2024 Rule was too general and expected that workers and
businesses assess the notion of ``economic reality'' with six broad and
vague factors, as well as any other information that might be
relevant--or later deemed relevant--without any direction regarding how
those factors should be applied. In this way, the 2024 Rule failed to
facilitate proper classification of workers. Instead, the Department
believes that the vagueness of the 2024 Rule, and its lack of
predictable application, pressured businesses to unnecessarily classify
bona fide independent contractors as employees. Although ``economic
reality'' may be an imprecise concept, the Department believes that in
most instances, the proper classification of workers under the law
can--and should--be reasonably certain and predictable.

B. Concerns That the 2024 Rule's Description of the Factors May Have a
Chilling Effect on Independent Contracting Arrangements and Departs
From the Supreme Court's Application

In addition to concerns about the 2024 Rule's lack of clarity, the
Department has concerns that the 2024 Rule could be viewed as more
restrictive of independent contracting than the law requires. As
explained below and consistent with comments received during the 2024
rulemaking, the Department is concerned that several of the economic
reality factors in the 2024 Rule are described in ways (particularly by
including additional considerations that must be met for the factor to
indicate independent contractor status) that make proper classification
of independent contractors more difficult than the law requires,
pressures the unnecessary classification of such workers as employees,
or tilts the analysis to make classification in one direction more
difficult with more attendant legal risk than the other. In the 2024
Rule, the Department stated that it was attempting to reflect the ways
in which a number of courts have viewed the various considerations
within the factors. Upon further consideration, the Department believes
that referencing a multitude of additional considerations within the
factors not only departs from the Supreme Court's articulation of the
factors, but also could have a chilling effect on independent
contractor arrangements involving individuals who are, in fact, in
business for themselves. Readopting the streamlined analysis in the
2021 Rule better aligns with the Court's precedent and reduces these
risks.
The ``investments'' factor at 29 CFR 795.110(b)(2) is instructive.
Before the 2024 Rule, when the Department would enumerate the multi-
factor economic reality test for assessing independent contractor
arrangements, the Department's description of the investments factor
would generally focus on any investments (or lack thereof) made by the
individual worker.\104\ However, the 2024 Rule expanded this factor to
examine ``investments by the worker and the potential employer,'' with
guidance elaborating that ``the worker's investments should be
considered on a relative basis with the potential employer's
investments in its overall business.'' \105\ The Department recognizes
that this additional consideration of comparing the worker's investment
to the potential employer's investment is applied by some courts, but
that approach has no support in Supreme Court cases. This is notable
given how close in time the key Supreme Court decisions were to the
enactment of the FLSA. But as explained in section III.F.2. below, the
Supreme Court has never compared investments and instead has focused
exclusively on the worker when considering investments.
---------------------------------------------------------------------------

\104\ See WHD Fact Sheet #13 (July 2008), https://www.dol.gov/sites/dolgov/files/WHD/fact-sheets/whdfs13.pdf (assessing ``[t]he
amount of the alleged contractor's investment in facilities and
equipment''); see also, e.g., WHD Op. Ltr. (June 23, 1949)
(examining ``the amount of the so-called `contractor's' investment
in facilities or equipment''); WHD Op. Ltr. (Aug. 13, 1954)
(examining ``the amount of investment on the part of the one who
performs the service''); WHD Op. Ltr. FLSA2019-6 (April 29, 2019)
(considering ``the amount of the worker's investment in facilities,
equipment, or helpers'').
\105\ 29 CFR 795.110(b)(2) (emphasis added).
---------------------------------------------------------------------------

Moreover, comparing investments diminishes the probative value of
the investment. An independent contractor's investments will almost
invariably be smaller than any corporate client's ``investments in its
overall business,'' and so counterfactually tends to indicate employee
status.\106\ In response to commenter concerns on this point, the
Department recognized the problem and clarified in the final 2024 Rule
regulatory text that the ``worker's investments need not be equal to
the potential employer's investments and should not be compared only in
terms of the dollar values of investments or the sizes of the worker
and the potential employer.'' \107\ Even with that clarification,
however, the 2024 Rule's ``investments'' factor still undertakes this
comparative approach, which is a departure from Silk and may obfuscate
proper classification of workers.
---------------------------------------------------------------------------

\106\ Id.; see 89 FR 1683-84.
\107\ 29 CFR 795.110(b)(2); see also 89 FR 1684 (explaining that
the Department intended for the analysis to ``compar[e] the
qualitative (rather than primarily the quantitative) value of the
investments'').
---------------------------------------------------------------------------

The 2024 Rule's ``permanence'' factor, 29 CFR 795.110(b)(3), is
another example. The operative text advises that ``[t]his factor weighs
in favor of the worker being an employee when the work relationship is
indefinite in duration, continuous, or exclusive of work for other
employers,'' while it ``weighs in favor of the worker being an
independent contractor when the work relationship is definite in
duration, non-exclusive, project-based, or sporadic based on the worker
being in business for themself and marketing their services or labor to
multiple entities.'' \108\ Here, the conditional language following the
word ``sporadic'' seems to add further considerations than the law
requires in order for an impermanent relationship to indicate
independent contractor status. Adding to the perception that it could
be more difficult to find that this factor weighs in favor of
independent contractor status, the 2024 Rule additionally advises, as
some courts have, that ``this [permanence] factor is not necessarily
indicative of independent contractor status'' where ``a lack of
permanence is due to operational characteristics that are unique or
intrinsic to particular businesses or industries and the workers they
employ . . . unless the worker is exercising their own independent
business initiative.'' \109\ There is no corresponding language in the
other direction, categorically discounting industries where lengthy
professional relationships between businesses and independent
contractors might be commonplace. The result is a factor framed in a
way that may indicate the existence of an FLSA employment relationship
when permanence exists but unnecessarily require additional
considerations to indicate independent contractor status when
permanence does not exist.
---------------------------------------------------------------------------

\108\ 29 CFR 795.110(b)(3).
\109\ Id.; see 89 FR 1688 and n.330.
---------------------------------------------------------------------------

The 2024 Rule's ``skill and initiative'' factor operates in a
similar fashion and also deviates from Supreme Court

[[Page 9942]]

precedent. The operative regulatory text begins with straightforward
guidance that a lack of skills indicates that a worker is an employee:
``This factor indicates employee status where the worker does not use
specialized skills in performing the work or where the worker is
dependent on training from the potential employer to perform the
work.'' \110\ However, the guidance does not correspondingly state that
specialized skills indicate that the worker is an independent
contractor and instead inserts an additional consideration that must be
met for this factor to indicate that a worker with specialized skills
is an independent contractor: ``Where the worker brings specialized
skills to the work relationship, this fact is not itself indicative of
independent contractor status because both employees and independent
contractors may be skilled workers. It is the worker's use of those
specialized skills in connection with business-like initiative that
indicates that the worker is an independent contractor.'' \111\ Here
again, the Department recognizes that this approach is applied by some
courts, but the 2024 Rule articulates this factor in a way that makes
it more difficult than the law requires to establish that a worker
might be an independent contractor rather than an employee. While it is
true that ``both employees and independent contractors may be skilled
workers,'' the converse is also true, as other workers who may not
possess ``specialized skills'' are both employees and independent
contractors. Moreover, although the 2024 Rule's consideration of
initiative as part of the skill factor is supported by some courts, the
Supreme Court has not considered initiative in terms of skill. Instead,
and as discussed in section III.G.1, it has consistently analyzed
whether initiative contributes to the success or profitability of the
claimed independent business.\112\
---------------------------------------------------------------------------

\110\ 29 CFR 795.110(b)(6).
\111\ Id.
\112\ Silk, 331 U.S. at 716 (finding that truck drivers ``depend
upon their own initiative, judgment and energy for a large part of
their success''); Rutherford Food, 331 U.S. at 730 (finding that
workers' ``profits'' did not depend ``upon the initiative, judgment
or foresight of the typical independent contractor'').
---------------------------------------------------------------------------

The 2024 Rule's ``integral'' factor departs from Rutherford Food's
guidance to consider whether a worker is part of an integrated unit,
and it may also unreasonably frustrate finding independent contractor
status where appropriate, because this factor weighs in favor of
employee status when his or her work is ``critical, necessary, or
central to the potential employer's principal business.'' \113\ In some
sense, all work performed is in some way necessary to the employer's
business. If not, the business would not pay for it to be
performed.\114\ Indeed, several commenters expressed concerns that the
integral factor would ``effectively subsume'' all independent
contractors into employment status because businesses do not pay
employees or independent contractors to engage in work that is not in
some sense critical or necessary to their operations.\115\ Finally, in
its descriptive guidance for the ``control'' factor, the 2024 Rule
gives several examples of facts relevant to a potential employer's
control over workers but does not provide similar examples of facts
relevant to a worker's control, further implying that this factor is
not a balanced aid in determining proper classification.\116\
---------------------------------------------------------------------------

\113\ 29 CFR 795.110(b)(5).
\114\ Lauritzen, 835 F.2d at 1539 (Easterbrook, J., concurring)
(``Everything the employer does is `integral' to its business--why
else do it?'').
\115\ 89 FR 1710.
\116\ 29 CFR 795.110(b)(4).
---------------------------------------------------------------------------

Taken together, these aspects of the 2024 Rule appear to be
misaligned with the Supreme Court's analysis and may have created the
perception of an economic reality test with a number of considerations
that would make it harder to conclude that an individual who is in
business for him- or herself is an independent contractor. While the
Department maintains that preventing the misclassification of FLSA-
covered employees as independent contractors is an important policy
goal, it is equally important that the Department's guidance not be
viewed as chilling independent contracting arrangements that comply
with the statute.

C. Concerns Over the 2024 Rule's Compatibility With the Modern Economy

In the 2021 Rule, the Department explained that certain
technological and social changes have made the traditional articulation
of the economic reality test more difficult to apply in the modern
economy. For example, it highlighted the effects of several types of
change, including societal transition from a predominantly industrial-
based to a more knowledge-based economy and shorter job tenures among
employees.\117\ In 2024, the Department disagreed with its past
statements and arguments from some commenters that the 2021 Rule was
better suited to the modern economy, asserting that ``[m]odern work
arrangements . . . are best addressed using the [2024 Rule's] economic
reality test, which considers the totality of the circumstances in each
working arrangement and offers a flexible, comprehensive, and
appropriately nuanced approach which can be adapted to disparate
industries and occupations.'' \118\ However, as discussed earlier in
section II.A., generalizing the legal analysis in ways that expand
``flexibility'' can undermine the utility of a rule--namely to clarify
the proper application of statutory provisions, which provides
regulated entities with the reasonable certainty and predictability
they need to do business. This is particularly true for practices which
might be novel and innovative. Moreover, in the 2024 Rule, the
Department did not address, much less refute, the points made by the
2021 Rule that the predictive accuracy of certain economic reality
factors (investments, permanence, and integrality) may be waning due to
recent workplace trends. These trends are no less true today than they
were in 2021, reinforcing the need for prioritization among the factors
of the economic reality test.
---------------------------------------------------------------------------

\117\ See 86 FR 1175.
\118\ 89 FR 1649.
---------------------------------------------------------------------------

D. Concerns Over Negative Effects if the 2024 Rule Is Left in Place

As a downstream consequence of all the risks described above, the
Department is concerned that leaving the 2024 Rule in effect could lead
to undesirable outcomes that are not required by, and may be
inconsistent with, the law. Specifically, a classification analysis
that amplifies ambiguity or is perceived as overly restrictive of
independent contracting may deter bona fide independent contracting and
related efficiencies and innovations in the broader economy. As the
Department acknowledged in the 2024 Rule, ``independent contractors and
small businesses play an important role in our economy.'' \119\
Independent contracting offers individuals the ability to control when,
where, and how they work, and it provides businesses--particularly
small enterprises and new ventures--with access to specialized skills
and scalable workforces.\120\
---------------------------------------------------------------------------

\119\ 89 FR 1646.
\120\ See, e.g., Liya Palagashvili, Exploring How Regulations
Shape Technology Startups, Mercatus Research 23 (May 2021), https://www.mercatus.org/media/74416/ (reporting that 57 percent of surveyed
tech startups indicated that the use of independent contractors was
``an indispensable or essential part of their business models'').
---------------------------------------------------------------------------

While independent contractors are not entitled to FLSA protections,
they often prize the autonomy and flexibility their work affords;
indeed, many pursue contracting arrangements as a preferred

[[Page 9943]]

mode of work.\121\ A rule that operates to complicate or discourage
these arrangements may inadvertently limit work opportunities for
individuals seeking flexibility due to caregiving responsibilities,
education, retirement, geographic constraints, or other personal
circumstances. For businesses, unclear regulations can deter growth and
investment. To the extent that the 2024 Rule curtails or discourages
legitimate independent contracting, investment, and innovation, it may
lead to negative effects on consumers, who may face higher prices and a
reduced number of alternatives to meet their needs. These potential
effects are discussed in greater detail in the preliminary regulatory
impact analysis for this proposed rule in section IV of this NPRM.
---------------------------------------------------------------------------

\121\ For example, in 2023, the Bureau of Labor Statistics
reported that 80.3 percent of independent contractors prefer their
work arrangement, compared to just 8.3 percent who would prefer a
``traditional work arrangement.'' Bureau of Labor Statistics, U.S.
Department of Labor, Contingent and Alternative Employment
Arrangements--July 2023, USDL-24-2267 (Nov. 8, 2024), https://www.bls.gov/news.release/pdf/conemp.pdf. The Department notes that
to the extent the discussion herein could be interpreted to mean
that individuals may choose whether to be an employee or an
independent contractor as a matter of law under the FLSA, as
discussed in the 2021 Rule, ``workers who are employees under the
facts and law [may not] waive the FLSA's protections by classifying
themselves as independent contractors.'' 86 FR 1179; see also 89 FR
1671 (similar discussion in 2024 Rule preamble).
---------------------------------------------------------------------------

In 2024, the Department explained that its rulemaking to rescind
and replace the 2021 Rule was motivated, in part, by concerns that the
2021 Rule had ``increased the risk of worker misclassification'' by
``improperly narrow[ing] the focus of the inquiry in a way that may
have led employers to believe the test no longer includes as many
considerations,'' asserting that ``confusion and misapplication of [the
2021 Rule] could deprive many workers of protections they are entitled
to under the FLSA.'' \122\ However, apart from highlighting statements
made by some commenters,\123\ the Department did not present any
evidence or otherwise demonstrate that the 2021 Rule was actually being
misapplied in ways that resulted in the misclassification of FLSA-
covered employees as independent contractors.\124\ To the contrary, the
Department issued numerous press releases contemporaneous to the 2022-
2024 rulemaking announcing successful enforcement actions where WHD
applied the 2021 Rule's analysis.\125\ This suggests that the 2021 Rule
was no impediment to the Department to appropriately identify, pursue,
and remedy the unlawful misclassification of FLSA-covered employees as
independent contractors, consistent with its duty to enforce the FLSA.
---------------------------------------------------------------------------

\122\ 89 FR 1658.
\123\ 89 FR 1656-57.
\124\ See 89 FR 1726 (suggesting in the 2024 Rule's regulatory
impact analysis that the 2024 Rule ``may reduce misclassification of
employees as independent contractors'' to the extent that
``confusion about how to apply the analysis in the 2021 IC Rule . .
. could lead to misclassification'') (emphasis added).
\125\ See, e.g., US Department of Labor Recovers $168K in Back
Wages for 51 Storm Recovery Workers Misclassified as Independent
Contractors, Denied Overtime, WHD Press Release (Jan. 23, 2024),
https://www.dol.gov/newsroom/releases/whd/whd20240123; US Department
of Labor Recovers $532K in Back Wages for 67 Workers After
Montgomery Home Care Employer Misclassifies Them as Contractors, WHD
Press Release (Nov. 14, 2023), https://www.dol.gov/newsroom/releases/whd/whd20231114-0; Department of Labor Recovers $1.6M in
Back Wages, Damages from North Carolina Contractor for 188 Workers
Misclassified as Independent Contractors, WHD Press Release (Aug. 9,
2023), https://www.dol.gov/newsroom/releases/whd/whd20230809.
---------------------------------------------------------------------------

Correctly classifying workers, whether as employees or independent
contractors, remains vitally important to the proper application and
enforcement of the FLSA. One of the most effective ways to prevent
misclassification is to clarify how workers and businesses may properly
and reliably apply the appropriate analysis across a wide array of
industries, companies, and individual working arrangements. The
Department's role is not to incentivize or disincentivize companies
from classifying workers as employees or independent contractors,
either by placing a regulatory finger on one side of the scale or the
other or by allowing legal ambiguity to discourage the correct
classification of individuals. In this rulemaking, the Department
proposes a rule that is more consistent with Supreme Court precedent,
provides a more cogent synthesis of the over 80 years of case law since
the FLSA's passage that have helped to define the relevant statutory
terms, and also seeks to minimize potential negative effects on
independent contractors and their business partners while still
effectively addressing misclassification and abuse.

E. The Need for Uniformity and Consistency in the Analysis of Employee
or Independent Contractor Status Under the FLSA, FMLA, and MSPA, Which
Share the Same Statutory Definitions of Employment

As noted earlier, the FMLA and MSPA both incorporate the FLSA's
broad definition of ``employ,'' including ``to suffer or permit to
work.'' See 29 U.S.C. 2611(3) (FMLA); 29 U.S.C. 1802(5) (MSPA). Thus,
it has been the Department's longstanding position that the analysis
for determining whether a worker is an employee or an independent
contractor should be the same under all three statutes--i.e., the
analysis which applies under the FLSA.
However, the Department's regulations do not currently reflect a
single standard for the three statutes.\126\ For example, the MSPA
regulation currently notes that MSPA and the FLSA share the same
employment definitions, see 29 CFR 500.20(h)(1)-(3), and advises that a
determination of employee or independent contractor status ``may
include consideration of whether'' there is an employee or independent
contractor relationship under the FLSA, see 29 CFR 500.20(h)(4).
However, the regulation also advises that determining whether
agricultural workers or farm labor contractors are independent
contractors ``should be resolved in accordance with the factors set
out'' in 29 CFR 500.20(h)(4), ``based upon an evaluation of all of the
circumstances.'' \127\ Those factors are not exactly the same as the
factors that the Department is proposing to adopt in this NPRM, and of
particular relevance, the MSPA regulation does not--like this
proposal--advise how to weigh the factors. There are also differences
between the economic reality factors in the MSPA regulation and some of
the factors described in the 2024 Rule and the analysis from FAB 2025-1
that the Department is currently applying. Thus, retaining the MSPA
regulation's instruction to assess employee or independent contractor
status ``in accordance with'' that regulation's enumerated factors
could create uncertainty over whether the FLSA guidance issued by the
Department on this topic--including the analysis proposed in this
rulemaking--also applies in MSPA cases.
---------------------------------------------------------------------------

\126\ The FMLA and MSPA both authorize the Department to issue
regulations interpreting their provisions. See 29 U.S.C. 2654
(FMLA); 29 U.S.C. 1861 (MSPA).
\127\ 29 CFR 500.20(h)(4) further advises that the determination
should also be made in accordance with ``the principles articulated
by the federal courts in'' five cited court decisions--Rutherford
Food, 331 U.S. 722, and four appellate cases addressing the FLSA
employment status of farm labor contractors or agricultural workers.
See Driscoll, 603 F.2d 748; Lauritzen, 835 F.2d 1529; Beliz v.
McLeod & Sons Packing Co., 765 F.2d 1317 (5th Cir. 1985); and
Castillo v. Givens, 704 F.2d 181 (5th Cir. 1983).
---------------------------------------------------------------------------

Failing to make conforming edits to the MSPA regulation risks
confusing agricultural employers, agricultural associations, and farm
labor contractors which might be subject to both the FLSA and MSPA, as
well as the agricultural workers that such entities engage. Revising
the MSPA regulation

[[Page 9944]]

(29 CFR 500.20(h)(4)) to conform it to the Department's FLSA regulatory
guidance would resolve these concerns and provide uniformity between
MSPA and the FLSA on this issue.
The FMLA regulation's guidance for assessing employee or
independent contractor status could be similarly unclear if conforming
edits are not made. The regulation defines ``Employee'' in 29 CFR
825.102 as having the same meaning as that term has under the FLSA and
notes that the ``definition of employ for purposes of FMLA is taken
from the [FLSA],'' 29 CFR 825.105(a). However, the FMLA regulation does
not mention the economic reality factors used to distinguish between
employees and independent contractors under the FLSA or advise how the
factors should be weighed. Instead, the regulation explains generally
that ``courts have said that there is no definition that solves all
problems as to the limitations of the employer-employee relationship.''
Id. It further advises that ``an employee, as distinguished from an
independent contractor who is engaged in a business of his/her own, is
one who `follows the usual path of an employee' and is dependent on the
business which he/she serves.'' Id. This language, although accurate in
describing the overall analysis, could be misinterpreted as suggesting
that--unlike the FLSA (and MSPA)--there is no set of factors for
distinguishing between employees and independent contractors in FMLA
cases. The Department did not intend to create or imply any discrepancy
between the FMLA and FLSA when it added the language in 29 CFR
825.105(a) in 1995.\128\ The Department believes that adding cross-
references to part 795 in 29 CFR 825.102 (definition of ``Employee'')
and 825.105(a) would address this concern and provide useful guidance
when making the determination under the FMLA.
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\128\ See 60 FR 2186 (``If a particular arrangement in fact
constitutes an employee-employer relationship within the meaning of
the FLSA (and case law thereunder) as contemplated by the statutory
definitions, and the `employee' satisfies FMLA's eligibility
criteria, the employee is entitled to FMLA's benefits. A true
independent contractor relationship within the meaning of the FLSA
would not constitute an employee-employer relationship.'').
---------------------------------------------------------------------------

The risk that employee or independent contractor status under the
FMLA could be assessed without applying FLSA principles is not merely
theoretical. In Alexander v. Avera St. Luke's Hospital, 768 F.3d 756,
763-64 (8th Cir. 2014)--the only federal circuit-court-level case to
decide such a dispute arising under the FMLA--the Eighth Circuit
expressly declined to apply an FLSA economic reality test to determine
whether the plaintiff was an employee or independent contractor. While
acknowledging that the FMLA incorporates the FLSA's ``suffer or
permit'' language, the Eighth Circuit concluded that ``simply
applying'' an FLSA economic reality test in that FMLA case would ``not
[be] appropriate,'' noting that the plaintiff's ``work in a
`professional capacity' was totally exempt from the FLSA's minimum
standards.'' Id. at 763 (citing 29 U.S.C. 213(a)(1)). The Department
believes that the Eighth Circuit's approach in Alexander, even if
limited to cases where the worker would be exempt from the FLSA if an
employee, is inconsistent with the FMLA's statutory text and the
Department's regulations and guidance, as well as the approach taken by
most federal district courts, which do apply an FLSA economic reality
test to adjudicate employee or independent contractor disputes under
the FMLA. See, e.g., Hay v. ALH Admin. Servs., 283 F. Supp. 3d 1273,
1276 (M.D. Fla. 2017); Nichols v. All Points Transp. Corp. of Mich.,
Inc., 364 F. Supp. 2d 621, 630 (E.D. Mich. 2005); Edwards v. Cmty.
Enters., Inc., 251 F. Supp. 2d 1089, 1103 (D. Conn. 2003).
Although the Department is not aware of any court that has declined
to apply an economic reality test under MSPA, several courts have cited
to the Department's MSPA regulation and applied its formulation of the
economic reality test at 29 CFR 500.20(h)(4) to determine whether an
individual is an independent contractor or employee under MSPA. See,
e.g., Fanette v. Steven Davis Farms, LLC, 28 F. Supp. 3d 1243, 1255-56
(N.D. Fla. 2014); Arredondo v. Delano Farms Co., 922 F. Supp. 2d 1071,
1075-82 (E.D. Cal. 2013); Luna v. Del Monte Fresh Produce (Se.), Inc.,
No. 1:06-CV-2000-JEC, 2008 WL 754452, at *7-9 (N.D. Ga. Mar. 19, 2008).
Of course, it is entirely appropriate for courts to apply the
Department's MSPA regulation to adjudicate employee or independent
contractor disputes under MSPA, as the Department's MSPA regulation is
a legislative rule issued pursuant to an express delegation of
rulemaking authority that is binding on regulated entities.\129\
However, to the extent the MSPA regulation's specific articulation of
the economic reality test differs in meaningful ways from the
Department's FLSA guidance (including the analysis proposed in this
rulemaking), the Department does not believe it is appropriate to have
separate economic reality tests for employee or independent contractor
status under laws which share the same statutory definitions for
employment.
---------------------------------------------------------------------------

\129\ See 29 U.S.C. 1861. The Supreme Court has advised that
legislative rules which carry the ``force and effect of law'' are
those which: (1) ``affect[ ] individual rights and obligations'';
(2) are ``rooted in a grant of [legislative] power by the
Congress''; and (3) are ``promulgat[ed] . . . [in] conform[ity] with
any procedural requirements imposed by Congress.'' Chrysler Corp. v.
Brown, 441 U.S. 281, 302-03 (1979) (internal quotation marks
omitted). Similarly, the Department's FMLA regulation is a
legislative rule issued pursuant to express rulemaking authority.
See 29 U.S.C. 2654.
---------------------------------------------------------------------------

The Department declined to revise the MSPA regulations in the 2021
and 2024 Rules as it did not see a compelling need to do so at those
times,\130\ emphasizing in the 2021 Rule, for example, the Department's
preference to ``proceed incrementally.'' \131\ However, the Department
recognizes that many stakeholders desire greater uniformity in the
analysis for determining employee or independent contractor status
across federal laws that explicitly share common statutory terms. As a
result, the Department now agrees that it should make clear that the
analysis is consistent under the FLSA, FMLA, and MSPA because these
statutes share the same relevant FLSA provisions.
---------------------------------------------------------------------------

\130\ See supra sections I.C. and I.E. The Department did not
address the FMLA in the 2021 or 2024 Rules.
\131\ 86 FR 1177; see also 89 FR 1664 (explaining in the 2024
Rule that the Department was ``not revising the MSPA regulation at
this time'') (emphasis added).
---------------------------------------------------------------------------

In sum, the Department's proposed edits to the FMLA and MSPA
regulations are motivated by the fact that the analysis for
distinguishing between employees and independent contractors should be
the same under those statutes as it is under the FLSA. Workers and
businesses alike would benefit from the simplicity and certainty of
having a single uniform standard for assessing employee or independent
contractor status under all three laws.

F. Request for Comments

The Department invites comments on the need for this rulemaking.
The Department specifically welcomes comments on its preliminary
reassessment of the 2024 Rule and of any consequences, positive or
negative, which have occurred since the 2024 Rule took effect last
year. The Department additionally seeks comments on whether any aspects
of the 2024 Rule should be retained, and if there have been any
significant economic or labor changes since 2021 that should inform
this rulemaking. Further, the Department seeks comments on the impact
and effects of the 2021 Rule during the period when

[[Page 9945]]

it was in effect, and how that may additionally inform the Department's
proposal to readopt the 2021 Rule's analysis, as modified. Finally, the
Department welcomes comments on its proposal to provide a uniform
standard for employee or independent contractor status under the FLSA,
FMLA, and MSPA.

III. Proposed Regulatory Provisions

For all of the reasons discussed in section II of this NPRM, the
Department is proposing to rescind the 2024 Rule's regulatory guidance
on employee or independent contractor classification (presently at 29
CFR part 795) and, separately, to readopt the 2021 Rule's regulatory
guidance on independent contractor classification in part 795 with a
few modifications. In the Department's view, rescission of the 2024
Rule would operate independently of any regulatory guidance adopted in
its place, as the Department intends for its proposed rescission of the
2024 Rule to be independent and severable from its proposal to readopt
guidance from the 2021 Rule.
As discussed in greater detail below, the proposal to readopt the
2021 Rule's FLSA guidance in part 795, with a few modifications,
includes:
An introductory provision at Sec. 795.100 explaining the
purpose of part 795;
a provision at Sec. 795.105(a) explaining that
independent contractors are not employees under the FLSA;
a provision at Sec. 795.105(b) discussing the ``economic
reality'' test for distinguishing FLSA employees from independent
contractors, including that the ultimate inquiry of economic dependence
turns on whether an individual is in business for him- or herself
(independent contractor) or is economically dependent on an employer
for work (employee) (the Department is additionally proposing to
provide further context on the meaning of economic dependence, as
explained below);
provisions at Sec. 795.105(c) and (d) describing factors
examined as part of the economic reality test, including two ``core''
or primary factors--the nature and degree of the individual's control
over the work and the individual's opportunity for profit or loss--
which, as has been the case in many judicial decisions, here too
typically carry greater weight in the analysis, as well as three other
factors that may serve as additional guideposts in the analysis
(although the Department is proposing one minor non-substantive change
to the regulatory text at Sec. 795.105(d)(2)(iii), as explained
below);
a provision at Sec. 795.110 advising that the parties'
actual practice is more relevant than what may be contractually or
theoretically possible;
fact-specific examples at Sec. 795.115 (although the
Department is proposing minor updates to one example from the 2021 Rule
and to add two new examples, as explained below); and
a severability provision at Sec. 795.120.
Additionally, the Department is proposing to revise the regulations
addressing employee or independent contractor status under MSPA and the
FMLA so that the analysis in part 795 applies when determining employee
or independent contractor status under those statutes too.
Specifically, the Department is proposing to revise 29 CFR 500.20(h)(4)
in the MSPA regulations to replace the analysis there with a cross-
reference to the analysis in 29 CFR part 795, and to revise the
definition of ``Employee'' in 29 CFR 825.102 and the language in 29 CFR
825.105(a) to incorporate into the FMLA regulations the analysis for
determining employee or independent contractor classification in 29 CFR
part 795.
The Department is not proposing to amend the existing versions of
29 CFR 780.330(b) and 788.16(a), which the 2024 Rule updated to include
cross-references to the guidance at 29 CFR part 795.\132\
---------------------------------------------------------------------------

\132\ See 89 FR 1725 (explaining changes to 29 CFR 780.330(b)
and 788.16(a)).
---------------------------------------------------------------------------

As noted above and for the reasons provided herein, the Department
believes this proposed analysis represents the best construction of the
FLSA--and by extension the FMLA and MSPA--with respect to whether an
individual is an independent contractor or an employee.

A. Introductory Statement (Proposed Sec. 795.100)

The Department is proposing to readopt the regulatory text of Sec.
795.100 from the 2021 Rule, which provided an introductory statement at
the beginning of the FLSA regulatory provisions. The introductory
statement would advise that: part 795 contains the Department's
``general interpretations of the text governing individuals'
classification as employees or independent contractors under the
[FLSA]''; the WHD Administrator will use the interpretations ``to guide
the performance of his or her duties under the [FLSA]'' and intends
them ``to be used by employers, employees, and courts to understand
employers' obligations and employees' rights under the [FLSA]''; any
prior inconsistent or conflicting ``administrative rulings,
interpretations, practices, or enforcement policies relating to
classification as an employee or independent contractor under the
[FLSA]'' are rescinded; and employers may rely on the interpretations
to satisfy the good faith reliance defense in the Portal-to-Portal Act
(29 U.S.C. 259), notwithstanding that after any such act or omission in
the course of such reliance, any such interpretation is modified or
rescinded or is determined by judicial authority to be invalid or of no
legal effect.
The Department believes that this introductory statement would
provide clarity as to how WHD intends to use part 795 and how
employers, businesses, workers, and courts should use part 795. The
introductory statement would also address how part 795 relates to prior
interpretations, providing further clarity to the public. Finally, the
introductory statement would explain how employers can rely on part 795
for purposes of the good faith reliance defense in the Portal-to-Portal
Act.
The Department's proposal that became the 2024 Rule stated that the
Department was ``proposing only clarifying edits'' to the Sec. 795.100
published in the 2021 Rule,\133\ and the 2024 Rule adopted proposed
Sec. 795.100 as the introductory statement ``without change'' and
described it as ``very similar to the 2021 IC Rule introductory
statement, except to note that these regulations would be interpretive
guidance.'' \134\
---------------------------------------------------------------------------

\133\ 87 FR 62233.
\134\ 89 FR 1664.
---------------------------------------------------------------------------

The Department believes that the version of the introductory
statement in the 2021 Rule more clearly and concisely summarizes the
purposes of part 795 and, therefore, is proposing to readopt that
version. In any event, the Department reiterates that proposed Sec.
795.100 (from the 2021 Rule) is very similar to current Sec. 795.100
(from the 2024 Rule).

B. Determining Employee and Independent Contractor Classification Under
the FLSA (Proposed Sec. 795.105)

As explained in the following sections of this NPRM, the Department
is proposing to readopt the analysis for determining employee or
independent contractor classification under the FLSA that it published
as Sec. 795.105 of the 2021 Rule.

[[Page 9946]]

C. Independent Contractors Are Not Employees Under the Act (Proposed
Sec. 795.105(a))

The Department is proposing to readopt the regulatory text of Sec.
795.105(a) from the 2021 Rule, which explained that independent
contractors are not employees under the FLSA. In the 2021 Rule, the
Department explained that an individual who renders services to a
person (a putative or potential employer) as an independent contractor
is not an employee of that person under the FLSA, which means that the
minimum wage, overtime pay, and recordkeeping obligations for employers
under sections 6, 7, and 11 of the FLSA do not apply with respect to
services received from the independent contractor.\135\
---------------------------------------------------------------------------

\135\ 86 FR 1177-78.
---------------------------------------------------------------------------

The 2024 Rule contained a similar provision (current 29 CFR
795.105(a)), explaining that the FLSA's minimum wage, overtime pay, and
recordkeeping obligations apply only to workers who are covered
employees under the FLSA, and that workers who are independent
contractors are not covered by these protections.\136\ The Department
is therefore proposing in this section to adopt explanatory guidance
that it has consistently provided across rulemakings.
---------------------------------------------------------------------------

\136\ 89 FR 1664-66.
---------------------------------------------------------------------------

D. Economic Dependence as the Ultimate Inquiry (Proposed Sec.
795.105(b))

The Department is proposing to readopt, with a few modifications,
the regulatory text of Sec. 795.105(b) from the 2021 Rule, which
explained, as the Supreme Court and courts of appeals have long held,
that economic dependence is the ultimate inquiry when determining an
individual's status under the FLSA. This section would reference the
relevant statutory text, explaining that an ``employee'' under the FLSA
is an individual whom an employer suffers, permits, or otherwise
employs to work. See 29 U.S.C. 203(e)(1), (g). It would further explain
that an employer suffers or permits an individual to work as an
employee if, as a matter of economic reality, the individual is
economically dependent on that employer for work, as distinguished from
an independent contractor, who is in business for him- or herself.
In the 2021 Rule, the Department explained that the ``touchstone''
of the economic reality test is ``economic dependence,'' that is the
nature or character of that dependence, as all workers, whether
employees or independent contractors, are dependent on others. 86 FR
1178. As the 2021 Rule further explained: ```Economic dependence is not
conditioned reliance on an alleged employer for one's primary source of
income, for the necessities of life.' '' Id. (quoting Brock v. Mr. W
Fireworks, Inc., 814 F.2d 1042, 1054 (5th Cir. 1987)). Rather, courts
have framed the question as `` `whether, as a matter of economic
reality, the workers depend upon someone else's business for the
opportunity to render service or are in business for themselves.' ''
Id. (quoting Saleem, 854 F.3d at 139). Moreover, the Department
observed in the 2021 Rule that some courts have relied on a worker's
entrepreneurship with respect to one type of work to conclude that the
worker was also in business for him- or herself in a second, unrelated
type of work, but that this ``approach is inconsistent with the Supreme
Court's instruction that the economic reality analysis be limited to
`the claimed independent operation.' '' Id. (quoting Silk, 331 U.S. at
716). Thus, ``the relevant question in this context is whether the
worker providing certain service to a potential employer is an
entrepreneur `in that line of business.' '' Id. (quoting Mr. W
Fireworks, 814 F.2d at 1054). Otherwise, businesses would be required
to make FLSA classification decisions based on facts outside of the
working relationship. Id.
The 2024 Rule contained a similar provision (current 29 CFR
795.105(b)), explaining that economic dependence is the ultimate
inquiry for determining whether a worker is an independent contractor
or an employee and clarifying that economic dependence does not focus
on the amount the worker earns or whether the worker has other sources
of income. 89 FR 1665. The Department is therefore providing
explanatory guidance that it has consistently provided across
rulemakings that economic dependence for work rather than economic
dependence for income is the proper inquiry. As the Third Circuit has
explained, economic dependence ``does not concern whether the workers
at issue depend on the money they earn for obtaining the necessities of
life . . . . Rather, it examines whether the workers are dependent on a
particular business or organization for their continued employment.''
Donovan v. DialAmerica Mktg., Inc., 757 F.2d 1376, 1385 (3d Cir. 1985).
As noted in the 2021 Rule, economic dependence does not mean that a
worker who works for other employers, earns a very limited income from
a particular employer, or is independently wealthy cannot nevertheless
be economically dependent on any particular employer for purposes of
the FLSA. See 86 FR 1173; see also McLaughlin v. Seafood, Inc., 861
F.2d 450, 452 (5th Cir. 1988), modified on reh'g, 867 F.2d 875 (5th
Cir. 1989) (reasoning that ``[l]aborers who work for two different
employers on alternate days are no less economically dependent than
laborers who work for a single employer''); Halferty v. Pulse Drug Co.,
821 F.2d 261, 267-68 (5th Cir. 1987) (rejecting the employer's argument
that the worker's wages were too little to constitute dependence). As
the Fifth Circuit has explained, ``it is not dependence in the sense
that one could not survive without the income from the job that we
examine, but dependence for continued employment.'' Halferty, 821 F.2d
at 268.
Consistent with the explanations above, and to provide further
context on the meaning of economic dependence, the Department is
proposing the regulatory text of Sec. 795.105(b) from the 2021 Rule
with two modifications. The purpose of the first modification would be
to clarify the nature and character of the economic dependence that an
employee typically has on an employer for work, as distinct from the
relationship that a business owner has to another business with which
it works. The purpose of the second modification would be to reinforce
the Department's consistent guidance that economic dependence for work
rather than economic dependence for income is the proper inquiry.
Specifically, the Department has added the following sentences to the
end of the proposed Sec. 795.105(b): ``Though both employees and
independent contractors are dependent on others in some sense, economic
dependence in this context means the dependence that a typical employee
has on an employer for work, as opposed to an individual who has more
of the nature and character of a business owner who has a separate
business. Economic dependence does not focus on the amount of income
the worker earns, or whether the worker has other sources of income.''
The Department welcomes comments on the inclusion of this additional
context on economic dependence into Sec. 795.105(b).

E. Determining Economic Dependence (Proposed Sec. 795.105(c))

The Department is proposing to readopt the regulatory text of Sec.
795.105(c) from the 2021 Rule, which explained that certain non-
exhaustive ``economic reality'' factors are more probative to the
determination of whether the relationship between an

[[Page 9947]]

individual and a potential employer is of the sort of economic
dependence characteristic of an employee or of an independent
contractor. 86 FR 1246 (Sec. 795.105(c)). As in the 2021 Rule, the
Department is proposing that two primary, or ``core'' economic reality
factors described in Sec. 795.105(d)(1)--namely, the control and
opportunity for profit or loss factors--are the most probative of
whether an individual is an economically dependent ``employee,'' and
that these two core factors will typically carry greater weight in the
analysis than any other factor. Thus, these two factors should be
considered first, and if both point toward the same classification
(either employee or independent contractor), there is a substantial
likelihood that is the accurate classification for the individual. The
Department is also proposing that the three additional economic
dependence, or economic reality, factors described in Sec.
795.105(d)(2)--skill, permanence, and whether the work is part of an
integrated unit of production--serve as additional guideposts but are
less probative in the analysis (and, in some cases, may not be
probative at all). As a result, these ``economic reality'' factors are
very unlikely, either individually or collectively, to outweigh the
combined probative value of the two core or primary factors when
together they point toward the same classification. As in the 2021
Rule, the Department is proposing that this provision will also explain
that all these economic reality factors are not exhaustive, and that no
single factor is dispositive.
As the Department explained in the 2021 Rule, this provision is
intended to improve the certainty and predictability of the multifactor
economic reality test by focusing it, much in the way that many courts
have effectively done, on two principal elements, which it labeled
``core'' factors. 86 FR 1179, 1196. Absent clear, generally applicable
guidance about how to balance the broad and overlapping factors and
facts encompassed in the multifactor economic reality test, there is an
excessive amount of uncertainty as to ``which aspects of `economic
reality' matter, and why.'' Lauritzen, 835 F.2d at 1539 (Easterbrook,
J., concurring); see also 86 FR 1173. As the Department explained when
proposing the 2021 Rule, although the Department and courts
historically analyzed ``the totality of the circumstances making up the
economic reality of the relationship to determine a worker's
classification'' without ``identifying which types of facts or factors
are the most important,'' the significance of facts may sometimes be
unclear or factors may point in opposite directions under this
approach, exacerbating uncertainty in the application of the law. 85 FR
60606-07, 60620. And, as noted below, even within the totality of the
circumstances and multifactor tests, some courts have tended to focus
on the core factors as the primary indicators of whether an individual
is an employee or independent contractor. The Department, taking its
cue from the courts, sought in the 2021 Rule to provide greater clarity
and focus by identifying the two factors it believed were most salient
in determining relevant economic dependence, explaining that the two
core factors ``drive at the heart of what is meant by being in business
for oneself: Such a person typically controls the work performed in his
or her business and enjoys a meaningful opportunity for profit or risk
of loss through personal initiative or investment.'' 86 FR 1196. As
such, even though no one test can perfectly harmonize the variations of
factors, language, and emphasis between the tests of the Supreme Court
and circuit courts of appeals, the Department has attempted to distill
the central commonality in these approaches to a single framework that
workers and employers alike may accurately apply and on which they may
confidently rely.
As explained in the 2021 Rule, highlighting the combined probative
value of the two core factors in the manner set forth in the regulatory
text proposed in Sec. 795.105(c) is supported by case law. The Supreme
Court has never required a factor-by-factor analysis. Although the
Court has applied the economic reality test only a handful of times, it
has repeatedly resolved cases by focusing primarily on facts that
concern the core factors identified in the 2021 Rule: control over the
work and the worker's opportunity for profit or loss based on
initiative and investment. In Silk, for example, the Court
distinguished between truck drivers and coal unloaders: the truck
drivers were deemed independent contractors because they owned their
trucks, could hire helpers, assumed risk, and had an opportunity for
profit; by contrast, the unloaders were employees because the putative
employers ``were directors of their businesses,'' they provided only
picks and shovels, and had no meaningful opportunity for profit based
on initiative or investment.\137\ In Rutherford Food, the Court
likewise found meat boners to be employees because they lacked control
over their work, could not or did not shift to other plants (and thus
had a continuous relationship with the slaughterhouse), and were paid
piece-rate wages dictated by the company rather than earnings tied to
initiative or capital investment (as the premises and equipment
belonged to the plant).\138\ Similarly, in Whitaker House, the Supreme
Court focused its analysis on facts related to control and opportunity
for profit, and did not discuss other economic reality factors. It
found that certain homeworkers were ``not self-employed . . . [or]
independent, selling their products on the market for whatever price
they can command,'' but instead were ``regimented under one
organization, manufacturing what the organization desires and receiving
the compensation the organization dictates,'' and thus employees.\139\
In each case, the Court listed multiple relevant considerations but
ultimately resolved the classification question by focusing on whether
the worker exercised control and had a genuine opportunity for profit
or loss based on initiative or investment--factors that go to the heart
of whether an individual is truly in business for themself.
---------------------------------------------------------------------------

\137\ 331 U.S. at 716-19.
\138\ 331 U.S. at 730-31.
\139\ 366 U.S. at 32.
---------------------------------------------------------------------------

Moreover, the Department is not aware of any federal appellate case
in which the court's ultimate conclusion as to an individual's
classification under the FLSA--whether employee or independent
contractor--was not in alignment with the court's analysis that the
control and opportunity for profit or loss factors both favored that
classification. 86 FR 1196-97.\140\ The

[[Page 9948]]

Department has further observed that ``courts of appeals have
effectively been affording the control and opportunity factors greater
weight, even if they did not always explicitly acknowledge doing so.''
86 FR 1198.
---------------------------------------------------------------------------

\140\ The Department noted ``a remarkably consistent trend based
on the Department's review of the results of appellate decisions
since 1975 applying the economic reality test. Among those cases,
the classification favored by the control factor aligned with the
worker's ultimate classification in all except a handful where the
opportunity factor pointed in the opposite direction. And the
classification favored by the opportunity factor aligned with the
ultimate classification in every case. These two findings imply that
whenever the control and opportunity factors both pointed to the
same classification--whether employee or independent contractor--
that was the court's conclusion regarding the worker's ultimate
classification.'' 86 FR 1196-97. See also New Jersey v. Bessent, 149
F.4th 127, 146 n.12 (2d Cir. 2025) (noting that where the text of a
statute ``in isolation, provides very little for us . . . to go
on,'' ``[m]uch of the settled understanding of'' the statute
``derives not from the four corners of the statute itself, but from
the meaning imputed to that statute by our precedents''). Thus, the
Department believes that the core factor structure is a veracious
synthesis of the case law that better captures the ``settled
understanding'' of who is an employee or independent contractor
under the FLSA than does the 2024 Rule.
---------------------------------------------------------------------------

The 2024 Rule did not include the guidance provided in this
provision, opting instead to use a totality-of-the-circumstances
analysis in which the economic reality factors were not assigned a
predetermined weight. The Department explained in the 2024 Rule that it
believed that this approach, which, as mentioned above, had been used
by courts and the Department (prior to the 2021 Rule), would be less
confusing and less prone to misapplication that could result in greater
misclassification. 89 FR 1647, 1726. The 2024 Rule also identified
further grounds for returning to the historical multifactor, totality-
of-the-circumstances analysis, including that the 2021 Rule's analysis
was not supported by judicial precedent or aligned with the FLSA's text
as interpreted by courts because it elevated the control and
opportunity for profit or loss factors, and in particular, elevating
control was contrary to courts' determination that the common law
control test should not be used to analyze independent contractor
classification under the FLSA. 89 FR 1650-53.
In proposing to re-promulgate the 2021 Rule's ``core factor''
analysis in Sec. 795.105(c), the Department recognizes that this
presents a change with respect to the interpretation from the 2024
Rule. The Department believes that this change is warranted for
significant and valid legal and policy reasons. Primarily, the
Department believes that a clearer, more focused test distilled from
overlapping judicial tests, that is easier for the regulated community
to accurately apply will provide more certainty for employers,
employees, and those who wish to engage with or as independent
contractors. With greater clarity, all of these persons can gain
efficiencies in their interactions, and there will likely be a reduced
need for litigation in which a court must ultimately reach a conclusion
years later about the proper classification of one or more individuals.
Additionally, the Department has reconsidered the concerns
identified in the 2024 Rule and believes they are misplaced. First, in
rescinding the 2021 Rule, the 2024 Rule relied in part on the assertion
that the 2021 Rule improperly gave two ``core factors''--the nature and
degree of control over the work and the worker's opportunity for profit
or loss--invariable weight in the analysis. 89 FR 1651, 1692. Upon
further consideration, the Department now concludes that this premise
was mistaken.
The 2021 Rule did not assign invariable weight to any factor or
combination of factors. Rather, it recognized that control and
opportunity for profit or loss are, in most cases, more probative than
other factors in determining whether a worker is in business for
themself. It expressly acknowledged that even when both factors align,
their combined weight could still be outweighed by other
considerations, though it viewed such circumstances as ``highly
unlikely.'' 86 FR 1246 (Sec. 795.105(c)).
Recognizing that certain factors are typically more probative than
others is not the same as assigning them invariable weight. This
mischaracterization in the 2024 Rule led the Department to conclude--
incorrectly--that the framework was inconsistent with the FLSA's text
and purpose, as interpreted by courts, and judicial precedent. Both
decades of case law and common-sense understanding confirm the
opposite, namely that whether a worker controls the manner of their
work and has a meaningful opportunity for profit lies at the core of
the employee-independent contractor distinction. For example, at the
time the FLSA was enacted, the term ``self-employed'' was understood to
mean ``earning income directly from one's own business, trade, or
profession rather than as a specified salary or wages from an
employer.'' \141\ This understanding--which remains true today--
suggests that an independent contractor is an independent business
owner, someone who directs the manner and means of his or her own work
and whose compensation depends on profit or loss, rather than on wages.
Thus, when assessing the legitimacy of an independent contracting
arrangement under the FLSA, facts germane to control and profit matter
more than factors such as the worker's skill, the duration of their
relationship with a particular business, or whether the work performed
is important or ``integral'' to that business. Those factors may be
relevant, but they are less directly tied to the ordinary understanding
of independent business status and the central inquiry of whether a
worker is truly in business for themselves.
---------------------------------------------------------------------------

\141\ See Self-employed, Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/self-employed (defining ``self-
employed'' as ``earning income directly from one's own business,
trade, or profession rather than as a specified salary or wages from
an employer'' and noting that the first known use of the term as
defined was in 1916); see also Self-employed, Webster's New
Collegiate Dictionary (1977).
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The Department believes that the concerns identified in the 2024
Rule therefore should not preclude the Department from identifying
those factors as the most reliable indicators of economic independence
in most cases, nor do they preclude the Department from providing
greater clarity in its interpretation of the economic reality analysis,
including guidance on how to weigh the factors. For example, the 2024
Rule noted ``tension'' between elevating the control and opportunity
for profit and loss factors and ``the longstanding judicial precedent,
expressed by the Supreme Court and in appellate cases from across the
circuits, that no single factor is determinative in the analysis of
whether a worker is an employee or an independent contractor, nor is
any factor or set of factors necessarily more probative of whether the
worker is in fact economically dependent on the employer for work as
opposed to being in business for themself.'' 89 FR 1650. Then as now,
the Department expressly rejects the notion that any factor, core or
otherwise, is determinative of the economic reality analysis. Likewise,
the Department does not share the notion that the economic dependence,
or economic reality, framework it proposes is in tension with the core
commonality in decisions from federal appellate courts across the
country. To the contrary, the Department believes that any tension
between judicial precedent and the core factor analysis from the 2021
Rule was overstated in the 2024 Rule, and that the 2021 Rule's analysis
does not run afoul of judicial precedent.
Specifically, the 2021 Rule and this proposal continue to affirm--
consistent with judicial precedent--that no one factor is
determinative. By identifying two factors that encompass the primary
considerations that are relevant to determining economic dependence,
the Department is certainly not implying that either one of these two
core factors alone would be determinative. Instead, the Department is
providing guidance (which, to the Department's knowledge, is consistent
with the outcome of every single federal appellate case) that these two
factors in combination and pointing to the same classification are
rarely going to be outweighed by the probative value of the remaining
economic reality factors. Further, the Department explained in the 2021
Rule that the core factor analysis provided in Sec. 795.105(c) did not
run afoul of the principle in FLSA case law that ``mechanical
application'' of the economic reality test is not appropriate because
the regulatory text recognizes that these two

[[Page 9949]]

factors ``typically'' (but not necessarily) carry more weight. 86 FR
1198-99. The Department explained that there may be situations in which
``a core factor does not weigh very strongly toward a particular
classification because considerations within that factor point in
different directions,'' or where a ``core factor may even be at
equipoise, in which case it would not weigh at all in favor of a
particular classification.'' 86 FR 1199. Thus, ``the weight assigned to
a factor in a particular case refers to how strongly specific facts
within the factor, on balance, favor a particular classification.'' 86
FR 1199. Identifying two factors as core factors does not mean that the
analysis is or should be applied mechanically, but rather just as
carefully, as there are often a variety of relevant facts and concepts
to consider within each individual factor before determining whether
the factor points toward a particular classification.
The 2024 Rule also noted that the Supreme Court and federal
appellate courts have emphasized that employment status under the
economic reality test turns upon ``the circumstances of the whole
activity'' rather than ``isolated factors,'' and that the Fifth Circuit
Court of Appeals has stated that it ``is impossible to assign to each
of these factors a specific and invariably applied weight.'' 89 FR 1651
& n. 127 (citing Parrish, 917 F.3d at 380). The Department believes
that the guidance provided in Sec. 795.105(c) does no such thing and
would not be so rigid as to confine the analysis to any isolated
factors, or that the core factors will necessarily always carry more
weight. The guidance simply and helpfully provides a focus to the
inquiry, while recognizing that the enumerated factors are ``not
exhaustive.'' Further, the guidance does not stop at the two core
factors, but rather identifies three other economic reality factors,
and also provides for the possible consideration of additional factors.
In other words, the Department's proposal, like the 2021 Rule, provides
for the consideration of all material facts. Although the other factors
are less probative, and in some cases, may not be probative at all, the
proposal to readopt the analysis from the 2021 Rule would still require
non-core factors to be considered as part of the circumstances of the
whole activity when determining economic dependence. As the Department
explained in the 2021 Rule, the ``other economic reality factors--
skill, permanence, and integration--are also relevant as to whether an
individual is in business for him- or herself,'' 86 FR 1196, and ``each
factor should be analyzed,'' 86 FR 1201. Thus, ``[a]ssigning one factor
less weight than another does not restrict the circumstances being
considered because the very act of determining relative weight requires
considering both factors.'' Id.
Though several commenters in the rulemaking that produced the 2024
Rule mistakenly believed that the analysis in Sec. 795.105(c) in the
2021 Rule could be reduced to a ``two-factor test'' or one where the
non-core factors were only considered when the two core factors pointed
to opposite classification outcomes, 89 FR 1656, the Department
reiterates that ``even when both of the core factors align, they are
not `controlling' because their combined weight can still be outweighed
by other considerations'' and that ``it is necessary to consider both
[core and non-core] factors.'' 86 FR 1201. In sum, the regulatory text
that the Department is proposing to readopt does not state, and should
not be interpreted, to apply in a mechanical way that precludes
consideration of all relevant facts and factors.
Regarding the concern identified in the 2024 Rule that elevating
control as one of the two core factors brings the analysis closer to
the common law control test that courts have rejected when interpreting
independent contractor classification under the FLSA, 89 FR 1652, the
Department believes, upon reconsideration, that a multifactor analysis
that recognizes the greater probative value of the control and
opportunity for profit or loss factors and considers other factors is
readily distinguishable from a control test. As discussed further
below, the opportunity for profit or loss factor that the Department is
proposing to readopt in Sec. 795.105(d)(1)(ii) encompasses an
individual's opportunity to earn profits or incur losses based on his
or her initiative or management of investments, and as such, includes a
number of critical considerations in evaluating economic dependence
that go beyond the nature and degree of control over work. As a result,
the Department believes that giving greater probative value to both the
control and opportunity for profit or loss factors (especially given
the considerations that comprise that factor) is not akin to adopting
the common law control test, which specifically designates control as
the overarching consideration. And importantly, the ``ultimate
inquiry'' of the analysis proposed by the Department would remain the
individual's economic dependence, 86 FR 1246 (Sec. 795.105(b)), which
is different from the common law's inquiry into control.\142\
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\142\ See Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730,
751 (1989); see also section V.B.1, infra (discussing the common law
control test as a regulatory alternative for this rulemaking).
---------------------------------------------------------------------------

Finally, the Department explained in the 2021 Rule that courts and
the Department had historically articulated the factors such that there
was overlap among the factors (i.e., some facts were considered under
multiple factors), which could lead to inefficiency and confusion when
attempting to apply the economic reality test. 86 FR 1174. Thus, the
analysis the Department is proposing to readopt as set forth in this
section is based on factors that have historically been used by the
Department and most federal courts of appeals, while describing two
factors as ``core'' or primary, and making certain reformulations
within each factor for clarity, as discussed below with respect to each
factor. Though the 2024 Rule expressed a concern that the 2021 Rule
unduly narrowed the analysis and did not allow for full consideration
of facts which might be relevant to determining whether a worker is
economically dependent on the employer for work, 89 FR 1653, upon
reconsideration, the Department believes that all relevant facts can be
considered, as detailed below in the discussions of each factor.
The Department welcomes comments from the public regarding their
experiences using the economic reality analyses provided in the 2021
and 2024 Rules, and why one may be preferable to the other.
Additionally, the Department seeks comment on whether further
streamlining the ``two core factor'' analysis would provide even
greater clarity and focus to the question whether an individual is an
employee or independent contractor under the FLSA. Specifically, the
Department could provide guidance that the control factor should be
considered first, followed--if necessary--by the opportunity for profit
or loss factor and the three other factors. In this further streamlined
analysis, if the potential employer controls the worker based on the
considerations for the control factor that the Department is proposing
to readopt (see discussion of control factor below), there would be no
need to consider any other factors and the worker would be an employee.
If the control factor indicates independent contractor status, or if
the control factor is neutral and does not indicate independent
contractor status or employee status, then the analysis

[[Page 9950]]

would proceed as proposed in this NPRM.\143\
---------------------------------------------------------------------------

\143\ In other words, if the opportunity for profit or loss
factor and the control factor indicate independent contractor
status, then the other three factors would be considered; however,
because the two core factors would both point toward the same
classification there is a substantial likelihood that is the
accurate classification for the individual and it would be highly
unlikely that the other factors would outweigh the combined
probative value of these two core factors. And if the control and
opportunity for profit or loss factors point toward different
classifications or are neutral, the other factors would be
considered to arrive at an overall determination as to the worker's
status.
---------------------------------------------------------------------------

The Department offers this alternative for comment in the interest
of bringing greater clarity to the analysis, but also in recognition of
the fact that the ``suffer or permit'' language in the FLSA has been
interpreted by the Supreme Court to provide a broader scope of
employment than the common law control test, see supra sections I.A.
and I.B.1. Yet, there are instances in which a worker could be an
employee under the common law control test but not under the FLSA's
economic reality test. For example, as discussed in the 2021 Rule, some
workers subject to a potential employer's ``right to control'' and who
would be employees under the common law test may nevertheless be
independent contractors when all of the economic reality factors are
applied. 86 FR 1204-05 (discussing, among other cases, Bartels, 332
U.S. at 132, where the Court held that a dance hall's contractual right
of control was insufficient to establish an employment relationship
with a band leader that it hired).
An alternative analysis that focuses first on whether the potential
employer controls the individual and results in employee status if
there is such control, but considers opportunity for profit or loss and
other factors if there is not such control, could be responsive to
language from Supreme Court decisions emphasizing that the FLSA extends
the scope of employment beyond the common law control test.\144\ Thus,
it may be possible to streamline the economic reality analysis even
further in a way that is consistent with the Supreme Court's
interpretation of employment under the FLSA. The Department welcomes
comments on this potential alternative application of the two core
factors identified in the 2021 Rule.
---------------------------------------------------------------------------

\144\ See Darden, 503 U.S. at 326 (explaining that the FLSA
``stretches the meaning of `employee' to cover some parties who
might not qualify as such under a strict application of traditional
agency law principles''); Rosenwasser, 323 U.S. at 362 (explaining
that ``[a] broader or more comprehensive coverage of employees
within the stated categories would be difficult to frame'').
---------------------------------------------------------------------------

Finally, the Department also welcomes comments about the most
effective, reliable, and consistent circuit court analyses, or other
appropriate analyses for determining employee or independent contractor
status.

F. Economic Reality Factors--Core Factors (Proposed Sec.
795.105(d)(1))

The Department is proposing to readopt as core factors the two
factors that it identified in Sec. 795.105(d)(1) of the 2021 Rule. As
noted in proposed Sec. 795.105(c), these factors constitute the
primary elements of the analysis into the nature of an individual's
economic dependence for work. These economic reality factors would be
``the most probative'' and ``typically carr[y] greater weight in the
analysis than any other factor,'' and ``if they both point towards the
same classification, whether employee or independent contractor, there
is a substantial likelihood that is the individual's accurate
classification.''
1. The Nature and Degree of Control Over the Work (Proposed Sec.
795.105(d)(1)(i))
The Department is proposing to readopt the regulatory text of Sec.
795(d)(1)(i) from the 2021 Rule, which discussed the first economic
reality core factor--the nature and degree of control over work. This
provision would explain that the control factor weighs toward the
individual being an independent contractor where the individual, rather
than the potential employer, exercises substantial control over key
aspects of the performance of the work such as scheduling, selection of
projects, and the ability to work for others (which may include the
potential employer's competitors). 86 FR 1246-47 (Sec.
795.105(d)(1)(i)). By contrast, the control factor would weigh in favor
of the individual being an employee where the potential employer,
rather than the individual, exercises substantial control over key
aspects of the performance of the work, such as by controlling the
individual's schedule or workload, or by directly or indirectly
requiring the individual to work exclusively for the potential
employer. Id.
Additionally, the Department is proposing to readopt guidance from
the 2021 Rule advising that when a potential employer places certain
compliance requirements on an individual, it ``does not constitute
control that makes the individual more or less likely to be an employee
under the Act.'' 86 FR 1247 (Sec. 795.105(d)(1)(i)). These pertain to
``[r]equiring the individual to comply with specific legal obligations,
satisfy health and safety standards, carry insurance, meet
contractually agreed-upon deadlines or quality control standards, or
satisfy other similar terms that are typical of contractual
relationships between businesses (as opposed to employment
relationships).'' Id. For example, as illustrated in the example in
Sec. 795.115(b)(1) (which the Department is proposing to readopt from
the 2021 Rule with an update to the scenario in the example, as
explained below), where a logistics company contracts with an
individual owner-operator of a tractor-trailer to provide
transportation services and the logistics company requires the owner-
operator to comply with federally-mandated transportation safety rules
requiring drug and alcohol testing, and requires the owner-operator to
meet certain contractually agreed-upon delivery deadlines, this does
not constitute control that would make it more or less likely for the
owner-operator to be an employee under the FLSA. Another example would
be requiring all workers to complete anti-harassment training. Such
training is intended to make the workplace safer, benefits everyone in
the workplace, and is not control that makes an individual worker more
or less likely to be an employee under the FLSA.
In the 2021 Rule, the Department explained that the control factor
referenced both the individual's control and the potential employer's
control, consistent with case law, which generally considers both the
individual's control and the potential employer's control. 86 FR 1180
(noting that the Supreme Court referred to ``degrees of control'' in
Silk, 331 U.S. at 716). The Department further explained that the three
identified examples of control that may indicate employee or
independent contractor status (setting schedules, selecting projects,
and working exclusively for the employer or working for others) were
non-exhaustive, and may or may not be probative in any particular case,
depending on the facts. 86 FR 1180-81.
Where commenters viewed the 2021 Rule's regulatory text as
limiting, the Department explained that ``the examples of types of
control identified in the proposal were not an attempt to narrow or
limit the control factor analysis. . . . Any type of control over the
work by the individual worker or the potential employer may be
considered.'' 86 FR 1181. The Department further noted that
considerations within these examples may be nuanced--for example, even
where an employer does not enforce an explicit bar on working for
others, the employer may impose working conditions that make doing so

[[Page 9951]]

impracticable, which is evidence of control. 86 FR 1181. Finally,
recognizing that many commenters sought industry-specific guidance with
respect to the control factor, the Department explained that ``it is
not possible--and would be counterproductive--to identify in the
regulatory text every type of control (especially industry-specific
types of control) that can be relevant when determining under the FLSA
whether a worker is an employee or independent contractor.'' 86 FR
1182. The Department reiterated that it had ``purposefully articulated
the control analysis in a general manner to encompass various different
types of control that the individual worker and the potential employer
may exercise over the working relationship, and to avoid any unintended
inferences regarding omitted types of control.'' 86 FR 1182.
The control factor in the 2024 Rule bears some similarities with
the control factor in the 2021 Rule, as well as some differences.
Overall, the Department explained that it continued to believe that
issues related to scheduling, supervision over the performance of the
work (including the ability to assign work), and the worker's ability
to work for others were relevant considerations in evaluating the
nature and degree of control. 89 FR 1690. Additionally, the 2024 Rule's
regulatory text explains that ``[m]ore indicia of control by the
potential employer favors employee status,'' whereas ``more indicia of
control by the worker favors independent contractor status.'' 29 CFR
795.110(a)(4).
The control factor in the 2024 Rule identifies additional aspects
of control in the regulatory text, including control mediated by
technology and control over economic aspects of the work relationship,
such as control over setting the prices or rates for services provided
by the worker, as well as consideration of whether a potential employer
places demands or restrictions on workers that do not allow them to
work when they choose. 29 CFR 795.110(a)(4). The 2024 Rule also
recognizes reserved control, including the right to supervise or
discipline workers, as a consideration relevant to the potential
employer's control, whereas the ``primacy of actual practice''
provision in the 2021 Rule (discussed below under proposed Sec.
795.110) advised that ``a business' contractual authority to supervise
or discipline an individual may be of little relevance if in practice
the business never exercises such authority.'' Additionally, the
regulatory text for the control factor in the 2024 Rule takes a
modified approach to the probative value of requirements placed on
individuals to comply with legal obligations, stating that ``[a]ctions
taken by the potential employer for the sole purpose of complying with
a specific'' law are not indicative of control, whereas ``[a]ctions
taken by the potential employer that go beyond compliance with a
specific'' law and ``instead serve the potential employer's own
compliance methods, safety, quality control, or contractual or customer
service standards may be indicative of control.'' 29 CFR 795.110(a)(4).
Upon reconsideration, the Department believes that the more
straightforward and focused explanation of the control factor in the
2021 Rule provides clearer guidance on how to evaluate control for
purposes of determining whether an individual is an employee or an
independent contractor under the FLSA. It is simply not possible for
the Department to describe all of the potentially-relevant
considerations for the control factor, as the 2024 Rule may have
attempted to do by adding other aspects of control for consideration.
As the Department explained in the 2021 Rule, it ``purposefully
articulated the control analysis in a general manner to encompass
various different types of control,'' and ``any type of control over
the work by the individual worker or the potential employer may be
considered, although some types of control are not probative of
economic dependence[.]'' 86 FR 1182. By proposing to readopt the
regulatory text from the 2021 Rule, the Department would provide
necessary additional guidance regarding the primacy of the parties'
actual practices as compared to reserved control (discussed below under
proposed Sec. 795.110), as well as providing greater clarity regarding
facts that are not indicative of control associated with an employment
relationship.
To that end, the Department recognizes that a very large proportion
of the comments received regarding the control factor during the
Department's 2024 rulemaking on this topic objected to proposed
guidance in the 2022 NPRM, 87 FR 62275, that ``[c]ontrol implemented by
the employer for purposes of complying with legal obligations, safety
standards, or contractual or customer service standards may be
indicative of [an employment relationship]''--a significant change from
guidance provided in the 2021 Rule, 86 FR 1247, which advised that such
actions ``[would] not constitute control that makes the individual more
or less likely to be an employee under the [FLSA].'' 89 FR 1691.
Commenters were particularly concerned that this change would
disincentivize legal compliance and discourage safety practices that
benefit all individuals in the workplace as well as the public
generally. 89 FR 1691.The Department explained in the preamble to the
final 2024 Rule that such ``comments have persuaded the Department that
the provision proposed may lead to unintended consequences due to
stakeholder confusion and uncertainty.'' 89 FR 1694. Although the
Department modified this guidance in the final 2024 Rule to take
commenters' concerns into account--clarifying that ``[a]ctions taken by
the potential employer for the sole purpose of complying with a
specific, applicable Federal, State, Tribal, or local law or regulation
are not indicative of [an employment relationship],'' 29 CFR
795.110(b)(4)--the Department believes the best course of action at
this time is to return to the language in the 2021 Rule, which provides
greater clarity and certainty regarding these considerations, and
therefore supports the Department's policy objectives in proposing to
readopt the 2021 Rule.
By proposing to readopt the language from the 2021 Rule, the
Department would also be restoring the guidance addressing aspects of
control taken for reasons other than legal compliance (including health
and safety standards and requirements to carry insurance), which
explain that requiring an individual to ``meet contractually agreed-
upon deadlines or quality control standards, or satisfy other similar
terms that are typical of contractual relationships between businesses
(as opposed to employment relationships) does not constitute control
that makes the individual more or less likely to be an employee under
the Act.'' Though the final regulatory text in the 2024 Rule adopted a
modified approach that takes into account ``[a]ctions taken by the
potential employer that go beyond compliance with a specific'' law and
``instead serve the potential employer's own compliance methods,
safety, quality control, or contractual or customer service
standards,'' which may be indicative of control associated with an
employment relationship, 29 CFR 795.110(b)(4), in the Department's
experience, determining what ``goes beyond'' a law can be a hurdle when
interpreting this guidance. Thus, the Department believes the guidance
in the 2021 Rule is clearer, less burdensome, and consistent with the
FLSA.
Finally, as this issue has generated a high number of comments in
the past,

[[Page 9952]]

the Department further notes (as it did in both the 2021 and 2024
rulemakings) that although the case law is not uniform on this aspect
of the control factor, the Department's proposed guidance is supported
by case law, as discussed in both the 2021 and 2024 Rules. 86 FR 1183;
87 FR 62247-48; 89 FR 1693-94.\145\
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\145\ For example, some courts have viewed employer requirements
on workers in order to comply with applicable legal obligations or
meet quality control standards as not indicative of control. See
Parrish, 917 F.3d at 382; Iontchev, 685 F. App'x at 550; Chao v.
Mid-Atl. Installation Servs., Inc., 16 F. App'x 104, 106 (4th Cir.
2001). Other courts have rejected employers' arguments that, because
they were exerting control over workers only to comply with legal
obligations imposed by the government or quality control standards,
their actions could not be viewed as evidence of control. See
Scantland, 721 F.3d at 1316; Hopkins, 545 F.3d at 343; Schultz v.
Mistletoe Express Serv., Inc., 434 F.2d 1267, 1271 (10th Cir. 1970).
Still other courts have recognized that where the employer goes
beyond compliance with specific legal requirements and exerts
control to serve its own purposes, this may indicate control. See
Hart v. Rick's Cabaret Int'l, Inc., 967 F. Supp. 2d 901, 916
(S.D.N.Y. 2013) (``[W]here a club implements regulations to assure
compliance with law, those regulations are not evidence of the
club's control over its dancers,'' but where the majority of the
rules are aimed at ``achiev[ing] [the employer's] business ends''
rather than ``providing a safe and law-abiding venue,'' the rules
``compellingly indicate'' control.); Ferguson v. Tex. Farm Bureau,
No. 6:17-CV-00111-ADA-JCM, 2021 WL 2349340, at *4 (W.D. Tex. May 19,
2021) (ruling that ``the exercise of requisite control should not be
indicative one way or another if regulations demand it'' but where
the employer took actions beyond what the regulations required, the
employer was ``in control of Plaintiffs'').
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The Department welcomes comments on all aspects of this proposed
factor.
2. The Individual's Opportunity for Profit or Loss (Proposed Sec.
795.105(d)(1)(ii))
The Department is proposing to readopt the regulatory text of Sec.
795.105(d)(1)(ii) from the 2021 Rule, which discussed the second
economic reality core factor--the individual's opportunity for profit
or loss. This factor would weigh toward the individual being an
independent contractor ``to the extent the individual has an
opportunity to earn profits or incur losses based on his or her
exercise of initiative (such as managerial skill or business acumen or
judgment) or management of his or her investment in or capital
expenditure on, for example, helpers or equipment or material to
further his or her work.'' 86 FR 1247 (Sec. 795.105(d)(1)(ii)). The
2021 Rule elaborated on the ``capital'' nature of the investment,
explaining that, ``[c]onsistent with the economic dependence inquiry,
an investment must indicate an independent business by the worker, as
opposed to merely being required by the potential employer, for it to
indicate an opportunity for profit or loss.'' 86 FR 1187.
This section would further explain that, ``[w]hile the effects of
the individual's exercise of initiative and management of investment
are both considered under this factor, the individual does not need to
have an opportunity for profit or loss based on both for this factor to
weigh towards the individual being an independent contractor.'' 86 FR
1247 (Sec. 795.105(d)(1)(ii)). Thus, both the individual worker's
exercise of initiative and management of investment would be considered
under this factor even if the opportunity for profit or loss factor may
indicate independent contractor classification based on only one.
Providing that the worker must have an opportunity for profit or loss
based on both initiative and investment for this factor to indicate
independent contractor status would overemphasize initiative and
investment and detract from this factor's ultimate focus on the
worker's opportunity, as it is that opportunity which is a core or
primary indicator of a worker's status as explained above.
This factor would weigh toward the individual being an employee
``to the extent the individual is unable to affect his or her earnings
or is only able to do so by working more hours or faster.'' 86 FR 1247
(Sec. 795.105(d)(1)(ii)). One of the examples from the 2021 Rule that
the Department is proposing to readopt (see proposed Sec.
795.115(b)(3)) illustrates this point in the context of a construction
worker who ``is paid a fixed hourly rate'' for a company that
``determines how many and which tasks she performs.'' The example would
explain that the worker ``does not have a meaningful opportunity for
profit or loss based on her exercise of initiative or investment,
indicating employee status,'' because she ``is unable to profit, i.e.,
increase her earnings, by exercising initiative or managing investments
because she is paid a fixed hourly rate and the company determines the
assignment of work.''
The 2024 Rule describes this factor as the ``opportunity for profit
or loss depending on managerial skill'' and explains that it
``considers whether the worker has opportunities for profit or loss
based on managerial skill (including initiative or business acumen or
judgment) that affect the worker's economic success or failure in
performing the work.'' 29 CFR 795.110(b)(1). The 2024 Rule identifies
the ``following facts, among others,'' as ``relevant: whether the
worker determines or can meaningfully negotiate the charge or pay for
the work provided; whether the worker accepts or declines jobs or
chooses the order and/or time in which the jobs are performed; whether
the worker engages in marketing, advertising, or other efforts to
expand their business or secure more work; and whether the worker makes
decisions to hire others, purchase materials and equipment, and/or rent
space.'' Id. The 2024 Rule explains that ``[i]f a worker has no
opportunity for a profit or loss, then this factor suggests that the
worker is an employee,'' and added that ``[s]ome decisions by a worker
that can affect the amount of pay that a worker receives, such as the
decision to work more hours or take more jobs when paid a fixed rate
per hour or per job, generally do not reflect the exercise of
managerial skill indicating independent contractor status under this
factor.'' Id.
The primary difference between the proposed opportunity for profit
or loss factor (from the 2021 Rule) and the opportunity for profit or
loss factor from the 2024 Rule is that the proposal considers the
individual's investment as a consideration within the opportunity
factor, while the 2024 Rule describes investments as a separate factor
in the analysis. The 2021 Rule explained that, although Silk
articulated opportunity for profit and loss and investment as separate
factors, it analyzed the two together. 86 FR 1174 and 1186 (both citing
331 U.S. at 719). In particular, the Court found that the coal
unloaders were employees because they had ``no opportunity to gain or
lose except from the work of their hands and [ ] simple tools,'' while
the truck drivers who invested in their own vehicles had ``opportunity
for profit from sound management'' of that investment by, for instance,
hauling for different customers. 331 U.S. at 718-19. Thus, it framed
the analysis as whether workers are more like unloaders whose profits
were based solely on ``the work of their hands and [ ] simple tools''
or the drivers whose profits depended on their initiative and
investments. Id. Considering investment as part of opportunity for
profit or loss is thus consistent with the Supreme Court's decision in
Silk.
In addition, the Second Circuit considers opportunity for profit or
loss and investment as one factor. See Saleem, 854 F.3d at 144 n.29
(``Economic investment, by definition, creates the opportunity for
loss, but investors take such a risk with an eye to profit.''); Franze
v. Bimbo Bakeries USA, Inc., 826 F. App'x 74, 76 (2d Cir. 2020);
Superior Care, 840 F.2d at 1058-59. The D.C. Circuit has adopted the
Second Circuit's consideration of opportunity

[[Page 9953]]

for profit or loss and investment as one factor. See Morrison v. Int'l
Programs Consortium, 253 F.3d 5, 11 (D.C. Cir. 2001) (citing Superior
Care, 840 F.2d at 1058-59). Although a majority of circuit courts
articulate opportunity for profit or loss and investment as separate
factors, some have acknowledged that the two concepts are related. See
McFeeley, 825 F.3d at 243 (explaining that the two factors ``relate
logically to one other'' and considering them together); Lauritzen, 835
F.2d at 1537 (``The capital investment factor is interrelated to the
profit and loss consideration.'').
The Department believes that proposing to consider the individual's
investment as part of the opportunity for profit or loss factor is
consistent with its intent to articulate a legal framework comprised of
commonality between the Supreme Court and federal appellate courts that
may be applied by workers and businesses accurately and reliably. This
approach provides greater explanation and clarity, including in terms
of how the factors relate to each other and what considerations
comprise each factor. Understanding the relationship between
opportunity for profit or loss and investment and considering them
together would make the analysis clearer to apply and avoid
duplication. Considering investment as part of opportunity for profit
or loss would also prevent an investment by the individual that is
unrelated to, and outside of, the business from becoming the focus of
the analysis. See, e.g., Parrish, 917 F.3d at 384 (considering
consultant's investment in, and losses relating to, a goat farm that
was unrelated to his work for an oil drilling company that was the
issue in the case). As the 2021 Rule explained, the economic reality
factors are limited to the individual's ``claimed independent
operation.'' 86 FR 1178 (citing Silk, 331 U.S. at 716). The example
from the 2021 Rule discussed above that the Department is proposing to
readopt (see proposed Sec. 795.115(b)(3)) illustrates this point in
the context of an individual who ``works full time performing home
renovation and repair services for a residential construction
company.'' The individual also ``earns substantial profits'' from a
food truck that she operates on weekends. However, ``that is a separate
business from her work in the construction industry, and therefore is
not relevant to the question of whether she is an employee of the
construction company or in business for herself in the construction
industry.''
By proposing to readopt the opportunity for profit or loss factor
from the 2021 Rule, this factor would consider the individual worker's
investment only and not the relative investments of both the individual
and the potential employer. As the 2021 Rule explained, ``comparing the
relative investments does not illuminate the worker's economic
dependence or independence,'' which is the ultimate inquiry. 86 FR
1188. Indeed, ``[c]omparing their respective investments does little
more than compare their respective sizes and resources.'' Id. The
potential employer in almost all (if not all) cases is larger and has
greater resources than the individual. That relative comparison thus
sheds little, if any, light on the individual's economic dependence or
independence and is not probative. The 2024 Rule considers the relative
investments but does not take an approach that simply compares ``the
dollar values of investments or the sizes of the worker and the
potential employer,'' explaining that, instead, ``the focus should be
on comparing the investments to determine whether the worker is making
similar types of investments as the potential employer (even if on a
smaller scale) to suggest that the worker is operating independently,
which would indicate independent contractor status.'' 29 CFR
795.110(b)(2). Even with this additional guidance, however, the
Department believes upon further consideration that the 2024 Rule's
consideration of relative investments is not probative of the economic
dependence or independence of the individual worker at issue, as
explained above, and unnecessarily introduces the potential employer's
size and resources into the analysis.
The Department believes that this approach is more consistent with
the Supreme Court's articulation of the economic reality test. The
Court has never compared a worker's investment to that of the potential
employer. To the contrary, in Silk, the Court recognized that the truck
drivers' ownership of their vehicles supported independent contractor
status even though the coal companies that engaged them undoubtedly had
far greater overall capital investments. 331 U.S. at 719. The
Department understands that this approach is different from how some
(but not all) circuit courts have since considered investment, but the
Department believes application of the Supreme Court's analysis takes
precedence.
Another example from the 2021 Rule that the Department is proposing
to readopt (see proposed Sec. 795.115(b)(2)) illustrates how only the
individual worker's investment should be considered. In the example,
the individual ``is able to meaningful[ly] increase his earnings by
exercising initiative and business acumen and by investing in his own
equipment,'' and the potential employer ``has invested millions of
dollars'' in its business. The example would explain that the
opportunity for profit or loss factor indicates independent contractor
status under those facts ``despite the substantial difference in the
monetary value of the investments made by each party'' because the
value of the potential employer's ``investment is not relevant in
determining whether the individual has a meaningful opportunity for
profit or loss through his initiative, investment, or both.''
Finally, it is well-settled that an individual worker's initiative
should be considered as part of opportunity for profit or loss. The
2021 Rule explained that ``a worker's initiative, such as managerial
skill or business acumen or judgment, is an appropriate measure of a
worker's opportunity to earn profits or incur losses.'' 86 FR 1189
(collecting cases). And the 2024 Rule describes this factor as
considering ``whether the worker has opportunities for profit or loss
based on managerial skill (including initiative or business acumen or
judgment) that affect the worker's economic success or failure in
performing the work.'' 29 CFR 795.110(b)(1). Consistent with the 2021
Rule and contrary to the 2024 Rule, however, the Department is
proposing to consider the individual's initiative only as part of the
opportunity for profit or loss factor and not as part of the skill or
permanence factors. The Department is addressing this further in the
discussions of the skill and permanence factors below, but notes that
this approach would avoid duplication and overlapping considerations
among factors and ensure that the key concept of entrepreneurial
initiative is considered in a core factor.
The Department welcomes comments on all aspects of this proposed
factor.

G. Economic Reality Factors--Other Factors (Proposed Sec.
795.105(d)(2))

The Department is proposing to readopt the other factors that it
identified in Sec. 795.105(d)(2) of the 2021 Rule that also guide the
economic reality analysis. 86 FR 1176. As noted in proposed Sec.
795.105(c), the Department believes that these factors would be less
probative than the proposed core or primary factors. In some cases,
they may not be probative at all. Nevertheless, as the 2021 Rule
explained, they would be considered in every case for whatever value
they bring to analyzing the character of an individual's economic

[[Page 9954]]

dependence for work, namely whether it is more in the nature and
character of a business owner or a typical employee.\146\
---------------------------------------------------------------------------

\146\ See 86 FR 1202.
---------------------------------------------------------------------------

1. The Amount of Skill Required for the Work (Proposed Sec.
795.105(d)(2)(i))
The Department is proposing to readopt the regulatory text of Sec.
795.105(d)(2)(i) from the 2021 Rule, which discussed the first other
economic reality factor--the amount of skill required for the work.
This factor would indicate independent contractor status ``to the
extent the work at issue requires specialized training or skill that
the potential employer does not provide.'' 86 FR 1247 (Sec.
795.105(d)(2)(i)). This factor would indicate employee status ``to the
extent the work at issue requires no specialized training or skill and/
or the individual is dependent upon the potential employer to equip him
or her with any skills or training necessary to perform the job.'' Id.
This factor would thus focus on training and skill because an
individual ``who is in business for him- or herself typically brings
his or her own skills to the job rather than relying on the client to
provide training.'' 86 FR 1191.
The individual worker's exercise of initiative would not be
considered under this factor. The Department explained in the 2021 Rule
that ``the Supreme Court articulated the factor as `skill required' in
Silk, 331 U.S. at 716, and multiple courts of appeals continue to
consider [it] as `the degree of skill required to perform the work.'''
86 FR 1191 (citing cases). As explained in the 2021 Rule, sharpening
this factor to consider only skill and not include initiative would
clarify the overall analysis and reduce overlapping considerations
among the factors given that the individual's exercise of initiative
would be considered under the opportunity for profit or loss factor (a
core factor). See id. This would be consistent with the proposed
analysis' focus on economic dependence because the presence or absence
of initiative is usually more probative of an individual's economic
dependence or independence than the skill required for the work. See
id.
The 2024 Rule articulates this factor as skill and initiative and
explains that it ``considers whether the worker uses specialized skills
to perform the work and whether those skills contribute to business-
like initiative.'' 29 CFR 795.110(b)(6). Similar to the 2021 Rule, the
2024 Rule explains that ``[t]his factor indicates employee status where
the worker does not use specialized skills in performing the work or
where the worker is dependent on training from the potential employer
to perform the work.'' Id. But when the individual worker has
specialized skills, the 2024 Rule advises that this is not itself
indicative of independent contractor status ``because both employees
and independent contractors may be skilled workers''; instead, ``[i]t
is the worker's use of those specialized skills in connection with
business-like initiative that indicates that the worker is an
independent contractor.'' Id.
The Department's proposal, like the 2024 Rule, would advise that
the lack of specialized skills or an individual being dependent on the
potential employer for training necessary to do the job indicates
employee status. However, the 2024 Rule incorporates an additional
consideration (compared to the 2021 Rule) when applying the skill
factor by stating that, if specialized skills are present, then this
factor does not necessarily indicate independent contractor status and
whether the individual worker uses the specialized skills in connection
with the business-like initiative is determinative for the factor.
Upon further consideration, refocusing this factor on skill and
training and excluding initiative (like the 2021 Rule) would be
consistent with the Department's overall goal in this proposal to
provide a clearer analysis whereby facts are relevant to a particular
factor rather than overlappingly considered under multiple factors. The
proposed skill factor would also eliminate the additional consideration
from the 2024 Rule of whether the individual uses those specialized
skills in connection with business-like initiative--another reason why
it would provide greater clarity. The individual's exercise of
initiative would of course still be considered in the overall analysis.
Initiative would be considered as part of the opportunity for profit or
loss factor (a core factor), reflecting the 2021 Rule's explanation
that the individual's initiative is usually more probative of the
individual's economic dependence or independence than the skill
required for the work.
The Department believes that considering initiative as part of the
opportunity for profit or loss factor is more consistent with the
Supreme Court's application of the economic reality test. In Silk, the
Court considered the truck drivers' initiative and judgment in the
context of their opportunity for profit, finding that they ``depend
upon their own initiative, judgment and energy for a large part of
their success'' in concluding that they were independent contractors.
331 U.S. at 716. Likewise, the Court in Rutherford Food found it highly
probative that ``profits to the boners'' did not actually depend ``for
success upon the initiative, judgment or foresight of the typical
independent contractor.'' 331 U.S. at 730. The Supreme Court has
treated the probative value of the worker's initiative as being tied to
the success or profitability of the worker's claimed independent
business, and the Department is proposing to adopt the same approach.
The Department understands that this approach is different from how
some (but not all) circuit courts have articulated the skill factor,
but it believes application of the Supreme Court's analysis takes
precedence.
The Department welcomes comments on all aspects of this proposed
factor.
2. The Degree of Permanence of the Working Relationship Between the
Individual and the Potential Employer (Proposed Sec.
795.105(d)(2)(ii))
The Department is proposing to readopt the regulatory text of Sec.
795.105(d)(2)(ii) from the 2021 Rule, which discussed the second other
economic reality factor--the degree of permanence of the working
relationship between the individual and the potential employer. This
factor would weigh in favor of the individual being an independent
contractor to the extent the work relationship is ``by design definite
in duration or sporadic, which may include regularly occurring fixed
periods of work, although the seasonal nature of work by itself would
not necessarily indicate independent contractor classification.'' 86 FR
1247 (Sec. 795.105(d)(2)(ii)). It would weigh in favor of the
individual being an employee ``to the extent the work relationship is
instead by design indefinite in duration or continuous.'' Id.
The 2021 Rule explained that ``this factor will not always be
probative,'' but noted that ``courts and the Department routinely
consider this factor when applying the economic reality analysis under
the FLSA to determine employee or independent contractor status.'' 86
FR 1192-93. In general, the Department noted that the regulatory text
``indicates that a long-term relationship points toward an employment
relationship,'' but that ``a long-term relationship may not always
indicate an employee relationship.'' 86 FR 1193. Further, the
Department explained that the short-term or seasonal nature of work
would not necessarily indicate independent contractor status. 86 FR
1192. For

[[Page 9955]]

example, seasonal work (which could be viewed as short-term or sporadic
and definite in duration, and therefore weighing toward independent
contractor status) ``would not indicate independent contractor status
where the worker's position is permanent for the duration of the
relevant season and where the worker has done the same work for
multiple seasons.'' Id. (citing Acosta v. Paragon Contractors Corp.,
884 F.3d 1225, 1236-37 (10th Cir. 2018)). Additionally, the Department
noted that ``in certain industries where employees are often employed
for short periods, a short term of employment would not indicate
independent contractor status.'' 86 FR 1193. These concepts are
illustrated in one of the examples from the 2021 Rule that the
Department is proposing to readopt (see proposed Sec. 795.115(b)(6)),
where a housekeeper works for a ski resort every winter and returns to
his position each new season, and therefore has a long-term and
indefinite relationship with the ski resort under the permanence
factor, which weighs in favor of classification as an employee.
The 2021 Rule also explained that, although some courts consider
the exclusivity of a work relationship as part of the permanence
factor, the Department believed that exclusivity is more directly
related to the control factor, which considers whether the individual
has the ability to work for others, rather than the permanence factor.
86 FR 1192. The Department explained that, similar to the Department's
analysis of the concept of initiative, ``the Department believes
analysis of exclusivity as part of the permanence factor dilutes the
significance of actual permanence within that factor, blurs the lines
between the economic reality factors, and creates confusion by
incorporating a concept that is distinct from permanence.'' 86 FR 1193.
The permanence factor in the 2024 Rule retains many of the same
considerations as the permanence factor in the 2021 Rule that the
Department is proposing to readopt, including that a work relationship
that is sporadic and definite in duration favors independent contractor
status, while a work relationship that is indefinite in duration and
continuous favors employee status. 29 CFR 795.110(b)(3). Additionally,
the 2024 Rule includes virtually identical language as the 2021 Rule
recognizing that ``regularly occurring fixed periods of work'' may be
considered to be definite in duration and sporadic, but that ``the
seasonal or temporary nature of work by itself would not necessarily
indicate independent contractor classification.'' Id.
The primary differences between the permanence factor in the 2021
Rule and the 2024 Rule are that the 2024 Rule incorporates the concepts
of exclusivity and initiative, whereas the 2021 Rule, as explained
earlier, sought to minimize blurring between the factors through use of
the same concepts in multiple factors. For example, the regulatory text
for the permanence factor in the 2024 Rule explains that, ``[w]here a
lack of permanence is due to operational characteristics that are
unique or intrinsic to particular businesses or industries and the
workers they employ, this factor is not necessarily indicative of
independent contractor status unless the worker is exercising their own
independent business initiative.'' 29 CFR 795.110(b)(3). And, the 2024
Rule recognized exclusivity as an aspect of permanence that courts and
the Department had viewed as relevant, making a policy choice to
include ``all facts that may be relevant to a particular factor.'' 89
FR 1688.
Upon further consideration, the Department is proposing to provide
greater clarity and efficiency by placing certain concepts--like
exclusivity and initiative--in the factor for which they are most
relevant (control and opportunity for profit or loss, respectively),
rather than using a confusing and redundant analysis that considers
facts related to these concepts in multiple factors. Moreover, the
Department has consistently noted throughout the 2021 and 2024
independent contractor rulemakings that it is important for the
Department to provide clear guidance on the fact that the ultimate
inquiry of economic dependence is a ``dependence-for-work'' analysis
rather than a ``dependence-for-income'' analysis. See 86 FR 1172-73; 89
FR 1690. Removing consideration of whether individuals have an
exclusive relationship with one employer or more than one job or source
of income from the permanence factor helps to clarify that a
``dependence-for-income'' approach is not indicative of whether an
employment relationship exists. Finally, because control and
opportunity for profit or loss are ``core'' factors, the concepts of
exclusivity and initiative will be given their appropriate probative
value, as opposed to the limited probative value of the permanence
factor overall in the proposed analysis. Thus, by proposing to readopt
the more streamlined permanence factor from the 2021 Rule, the
Department believes it will better retain key concepts relevant to the
permanence factor within the broader analysis.
The Department welcomes comments on all aspects of this proposed
factor.
3. Whether the Work Is Part of an Integrated Unit of Production
(Proposed Sec. 795.105(d)(2)(iii))
The Department is proposing to readopt the regulatory text of Sec.
795.105(d)(2)(iii) from the 2021 Rule, which discussed the third other
economic reality factor--whether the work is part of an integrated unit
of production. The Department is proposing to make one non-substantive
change to the regulatory text, to align the description of this factor
with the descriptions of the other factors, all of which begin by
explaining how the factor weighs in favor of independent contractor
status before explaining how the factor weighs in favor of employee
status. See 86 FR 1246-47 (Sec. 795.105(d)(1), (d)(2)(i)-(ii)). This
factor would weigh in favor of the individual being an independent
contractor ``to the extent his or her work is segregable from the
potential employer's production process'' and would weigh in favor of
the individual being an employee ``to the extent his or her work is a
component of the potential employer's integrated production process for
a good or service.'' 86 FR 1247 (Sec. 795.105(d)(2)(iii)). This
provision would clarify that this factor is different from the concept
of the importance or centrality of the individual's work to the
potential employer's business. Id.
In the 2021 Rule, the Department explained that the ``integrated
unit'' factor derives from Rutherford Food, in which the workers
ultimately determined to be employees were ``part of an integrated unit
of production'' who worked ``alongside admitted employees of the plant
operator at their tasks.'' 86 FR 1194 (citing 331 U.S. at 729). As the
Department acknowledged and many commenters noted, the 2021 Rule's
``integrated unit'' formulation of the factor differed from the way the
Department's prior guidance and most courts articulated this factor
using an ``integral part'' analysis. 86 FR 1193. That formulation
considers ``the extent to which services rendered are an integral part
of the potential employer's business.'' Id.
Under an ``integral part'' analysis, courts focus on the importance
or centrality of the work to the potential employer's business. In the
2021 Rule, the Department reasoned that asking whether a worker is a
part (integral or otherwise) of the potential employer's business
``simply restates the ultimate inquiry: If a worker were part of the
potential employer's business, then he

[[Page 9956]]

or she could not be in business for him- or herself and therefore would
be economically dependent.'' 86 FR 1194.
In the 2021 Rule, the Department also explained that the ``integral
part'' factor used by courts has limited probative value and may be
misleading in some instances. 86 FR 1193. As the Department observed,
everything the employer does could be considered ``integral'' in the
sense of ``important.'' 86 FR 1194; see Lauritzen, 835 F.2d at 1541
(Easterbrook, J., concurring) (``Everything the employer does is
`integral' to its business--why else do it?''). The Department
concluded that an analysis based on importance or centrality could
favor employee status even for individuals who are independent
contractors, rather than being probative of economic dependence.
The 2024 Rule returned to the ``integral part'' analysis,
articulating the relevant inquiry as whether the work is ``critical,
necessary, or central to the potential employer's principal business.''
29 CFR 795.110(b)(5). In the 2024 Rule, the Department asserted that
``courts continue to find the integral [part] factor useful.'' 89 FR
1708. Responding to commenters' concerns that this formulation of the
integral factor would point to employee status in virtually all cases,
the 2024 Rule emphasized that the ``key limiting word'' is
``principal,'' which would distinguish work that is critical or
necessary in a general sense--e.g., an accountant hired to manage a
business's tax obligations--from work that is critical or necessary to
the potential employer's principal business--e.g., picking tomatoes for
a tomato farm. 89 FR 1710-11.
Upon reconsideration, the Department believes that the ``integrated
unit'' formulation of this factor is more probative of whether an
individual is economically dependent on the potential employer for work
than the ``integral part'' analysis. It is also more consistent with
the Supreme Court's consideration in Rutherford Food of whether a
worker is part of an ``integrated unit.'' \147\ The Department believes
that an individual who is integrated into the potential employer's
production process is more likely to be an employee. Conversely, an
individual who performs services that are segregable from the potential
employer's production process is more likely to be an independent
contractor. The difference is illustrated by the examples that the
Department is proposing to readopt from the 2021 Rule (see proposed
Sec. Sec. 795.115(b)(7)-(8)), which contrast a newspaper editor, who
is involved in the entire production process of the newspaper, with a
freelance journalist, whose work is limited to article submissions and
is segregated from the rest of the newspaper's production process.
---------------------------------------------------------------------------

\147\ 331 U.S. at 729.
---------------------------------------------------------------------------

The Department believes that the ``integral part'' analysis departs
from how it was intended to apply in Silk. While the 2024 Rule asserted
that Silk considered whether coal unloaders were an ``integral part''
of the coal business as a relevant factor,\148\ on reexamination, the
Department now believes the Court merely discussed ``integral part'' in
the context of the control factor. After listing the economic reality
factors--which began with ``degrees of control'' and did not include
integrality--the Silk Court stated: ``These unloaders and truckers and
their assistants are from one standpoint an integral part of the
businesses of retailing coal or transporting freight. Their energy,
care and judgment may conserve their equipment or increase their
earnings but Greyvan and Silk are the directors of their businesses''
\149\ As the 2021 Rule explained, to the extent that a company directs
the performance of integral work, that is already captured under the
control factor.\150\
---------------------------------------------------------------------------

\148\ 89 FR 1709 (citing Silk, 331 U.S. at 716).
\149\ Silk, 331 U.S. at 716.
\150\ 86 FR 1194. To the extent that Silk can be read as
introducing the ``integral part'' analysis as a separate factor, the
outcome demonstrates that it is not highly probative and may even be
misleading. Both unloaders and drivers performed work that was
integral to the potential employer's business, yet one group was
deemed employees and the other independent contractors.
---------------------------------------------------------------------------

The Department believes its approach best supports the policy
objective of providing greater clarity to business owners, workers, and
independent contractors. The Department further believes that the 2024
Rule's emphasis on the potential employer's principal business lacks
sufficient precision for the modern economy, in which, for example,
modern manufacturers commonly assemble critical parts and components
produced by wholly separate companies.
The Department welcomes comments from the public regarding their
experiences applying the ``integrated unit'' analysis of the 2021 Rule
and the ``integral part'' analysis of the 2024 Rule, as well as any
other aspect of this proposed factor.
4. Additional Factors (Proposed Sec. 795.105(d)(2)(iv))
The Department is proposing to readopt the regulatory text of Sec.
795.105(d)(2)(iv) from the 2021 Rule, which provided: ``Additional
factors may be relevant in determining whether an individual is an
employee or independent contractor for purposes of the FLSA, but only
if the factors in some way indicate whether the individual is in
business for him- or herself, as opposed to being economically
dependent on the potential employer for work.'' 86 FR 1247 (Sec.
795.105(d)(2)(iv)).
The Department and courts have consistently stated that the
identified factors are not exhaustive and additional factors may be
considered. See, e.g., Silk, 331 U.S. at 716 (explaining that its list
of factors is not ``complete''); WHD Opinion Letter FLSA 2025-2 at 5
(explaining that ``[o]ther factors may also be relevant'' in addition
to the identified factors); see also, supra, discussion of proposed
Sec. 795.105(c) (which would state that the identified ``factors are
not exhaustive''). Of course, such additional factors are relevant only
to the extent that they help answer the ultimate inquiry (see proposed
Sec. 795.105(b)): whether the individual is in business for him- or
herself or is economically dependent on the employer for work. For
example, the ``integral part'' factor considered by most circuit courts
could still be analyzed as an ``other factor'' to the extent it is
probative as to this question.
The preamble to the 2021 Rule advised that factors that do not bear
on this ultimate inquiry, ``such as whether an individual has alternate
sources of wealth or income and the size of the hiring company,'' are
not relevant. See 86 FR 1196. The Department welcomes comments on
whether it should identify in any final rule certain facts or factors
(in addition to or in lieu of the individual's alternate sources of
wealth or income and the size of the employer) as not relevant because
they do not bear on the individual's economic dependence.
Finally, consistent with the emphasis in the 2021 Rule's analysis
and the analysis being proposed here that two factors are ``core''
factors that typically carry greater weight than other factors, any
additional factors would be less probative than the core factors listed
in Sec. 795.105(d)(1). See 86 FR 1196. The precise weight of any
additional factors would depend on the circumstances of each case and
would be unlikely to outweigh either of the core factors. See id.
The 2024 Rule adopted Sec. 795.105(d)(2)(iv) of the 2021 Rule with
only minor editorial changes, although it was renumbered and moved to
Sec. 795.110(b)(7). See 87 FR 62257; 89 FR 1715-18; 29 CFR
795.110(b)(7). Making

[[Page 9957]]

the additional factors section the seventh numbered subparagraph after
six numbered paragraphs discussing the identified factors, as the 2024
Rule did, may have inadvertently caused confusion by suggesting that
additional factors had to be considered in every case. To the contrary,
the Department expects that additional factors will not be considered
in many cases because the identified factors will be more than
sufficient to make the determination. As the Department explained in
the 2024 Rule, ``in many instances, consideration of additional factors
will not be necessary because the relevant factual considerations can
and will be considered under one or more of the enumerated factors.''
89 FR 1717.
Because it is well-settled that additional factors may be
considered if they are relevant to the ultimate inquiry of the
individual's economic dependence and for the other reasons explained
above, the Department is proposing to readopt Sec. 795.105(d)(2)(iv)
of the 2021 Rule.

H. Primacy of Actual Practice (Proposed Sec. 795.110)

The Department is proposing to readopt the regulatory text of Sec.
795.110 from the 2021 Rule, which explained that when ``evaluating the
individual's economic dependence on the potential employer, the actual
practice of the parties involved is more relevant than what may be
contractually or theoretically possible.'' 86 FR 1247 (Sec. 795.110).
As an example, an individual's ``theoretical abilities to negotiate
prices or to work for competing businesses are less meaningful if, as a
practical matter, the individual is prevented from exercising such
rights.'' Id. As another example, a potential employer's ``contractual
authority to supervise or discipline an individual may be of little
relevance if in practice the business never exercises such authority.''
Id.
In the 2021 Rule, the Department explained that the primacy of
actual practice is derived from the Supreme Court's holding that ``
`economic reality' rather than `technical concepts' is to be the test
of employment'' under the FLSA. 86 FR 1203 (quoting Whitaker House, 366
U.S. at 33). The Department also explained that ``prioritizing
substance over form is consistent with the Department's general
interpretation and enforcement of the FLSA.'' 86 FR 1204. For example,
a ``skillfully devised'' contract may suggest that a worker is an
independent contractor, while the actual practices of the parties
establish the existence of an employment relationship. 86 FR 1204. In
such a case, the economic reality of the working relationship, as shown
by actual practices, is an employment relationship. At the same time,
the Department observed that an emphasis on actual practices ``is not a
one-way ratchet, applying selectively either for or against a finding
of independent contractor status.'' 86 FR 1205. The actual practices of
the parties may suggest that an individual is an employee, or they may
suggest an individual is an independent contractor. See id. (comparing
Donovan v. Sureway Cleaners, 656 F.2d 1368, 1371 (9th Cir. 1981), and
DialAmerica, 757 F.2d at 1387, with Saleem, 854 F.3d at 143).
The 2024 Rule similarly recognized that actual practices are
``often more relevant to the economic dependence inquiry than
contractual possibilities.'' 89 FR 1721. The 2024 Rule departed from
the 2021 Rule in stating that ``reserved contractual rights, like
reserved control, may in certain cases be equally as, or more,
indicative of the economic reality than the actual practice of the
parties.'' 89 FR 1720. The 2024 Rule provided as an example that a
potential employer's reserved rights to control ``may strongly
influence the behavior of the worker in their performance of the work
even absent the employer actually exercising its contractual rights.''
Id. In removing this provision, the 2024 Rule characterized it as a
``bright line rule'' and a ``predetermined elevation of actual practice
above unexercised or reserved rights'' in an ``overly mechanical''
manner that was inconsistent with the totality-of-the circumstances
economic reality analysis. 89 FR 1718, 1720, 1721.
The 2021 Rule did not, however, categorically disregard reserved
rights. In response to various stakeholders' comments, the Department
declined both to entirely disregard unexercised contractual rights (as
suggested by some commenters generally supportive of the 2021 Rule) and
to afford equal relevance to reserved control and control that is
actually exercised (as suggested by some commenters generally opposed
to the 2021 Rule). 86 FR 1204 and n.56. The Department emphasized that
``unexercised powers, rights, and freedoms are not irrelevant'' but
``merely less relevant than powers, rights, and freedoms which are
actually exercised under the economic reality test.'' 86 FR 1204.
Evaluating ``the circumstances of the whole activity'' in a work
arrangement, Rutherford Food, 331 U.S. at 730, requires consideration
of both actual practices and contractual rights, but the ``reality'' of
the work arrangement, Silk, 331 U.S. at 713, lies more in what actually
happens than what a contract suggests may happen. This principle is
illustrated in Bartels, in which the Supreme Court concluded that the
dance hall's contractual right of control was not as probative as the
band leader's actual exercise of control over band members.\151\
---------------------------------------------------------------------------

\151\ 332 U.S. at 128, 132.
---------------------------------------------------------------------------

Upon further consideration, the Department is proposing to readopt
the 2021 Rule's provision confirming the primacy of actual practice.
The Department believes that the 2024 Rule's removal of this provision
produced uncertainty among stakeholders regarding how to weigh evidence
of actual practices against unexercised contractual provisions or
theoretical possibilities. This confusion was evident in numerous
comments the Department received from parties who viewed the removal of
the actual practice provision as a disavowal of longstanding FLSA case
law that has consistently focused on the reality of a work relationship
rather than assuming that formalities like a title or contractual
arrangement are dispositive of whether an individual is an employee or
an independent contractor. See 89 FR 1718-20. Though the Department
explained in the preamble to the 2024 Rule that it did ``not intend to
in any way minimize or disregard the longstanding case law that
considers the actual behavior of the parties in order to determine the
economic reality,'' 89 FR 1719-20, having a regulatory text provision
in place would provide greater certainty. In re-affirming that actual
practice is more relevant than what may be contractually or
theoretically possible, the Department believes that, contrary to the
2024 Rule's characterization, this provision does not create a bright-
line rule but provides greater clarity on the respective roles that
actual practice and contractual provisions play in determining the
economic reality of the working relationship.
As the Department explained in the 2021 Rule, recognizing the
primacy of actual practice does not mean that facts regarding
unexercised contractual rights and authorities are never relevant. 86
FR 1204. Two circuit court cases that considered evidence of both
actual practices and reserved rights are illustrative. In Saleem, the
Second Circuit's focus on actual practices led to the conclusion that
black-car drivers were independent contractors, and that conclusion was
also supported by evidence of reserved rights. 854 F.3d at 142. The
court found that the drivers were not only permitted to but actually
did drive for competitors and personal

[[Page 9958]]

clients, hire helpers in some cases, set their own schedules, and
decline assignments without meaningful repercussions. Id. at 142-43,
146-47. While the court's overall inquiry was focused on actual
practices, it also considered reserved rights in the parties'
contracts. Id. at 135-36, 141. In particular, the court found that a
provision that permitted drivers to terminate the contracts at any time
``constituted a significant restriction on the ability of [the
potential employers] to exercise control.'' Id. at 141.
In Brant v. Schneider National, Inc., 43 F.4th 656, 665 (7th Cir.
2022), the Seventh Circuit applied the ``well established'' principle
that ``the terms of a contract do not control the employer-employee
issue under the [FLSA]'' to a truck driver who hauled freight for a
freight company. In considering several provisions in the parties'
contract that theoretically indicated independent contractor status,
the court repeatedly emphasized that the relevant inquiry is ``economic
reality, not just contractual terms.'' Id. at 672. The driver's
theoretical abilities to control the manner of his work, hire helpers,
own his own truck, and choose his own routes did not indicate that he
was an independent contractor where he was not, as a practical matter,
able to exercise those abilities. Id. at 666-68. The court also
considered a contractual provision under which the potential employer
``retained the right to gather remotely and to monitor huge quantities
of data'' and to use that data ``for any reason [it] deems advisable,''
including as a basis to terminate the contract. Id. at 666-67. ``This
allegedly high degree of scrutiny,'' coupled with ``the constant threat
of termination,'' weighed in favor of employee status. Id. at 667. As
Saleem and Brant demonstrate, centering the focus on actual practice
does not preclude consideration of reserved contractual rights and
authorities where they are relevant.
In readopting the 2021 Rule's ``actual practice'' provision, the
Department acknowledges that, in certain situations where it is well
established that either an employer and/or a worker engages in actual
practice that is consistent with the relevant provision of a clear and
binding contractual agreement between them, that provision would be
more probative than a provision for which actual practice is not so
well established. Indeed, where contractual provisions between workers
and putative employers reflect actual practice, they may even have
substantial probative value.
The Department welcomes comments on any aspect of the proposed
readoption of the primacy of actual practice provision.

I. Examples of Analyzing Economic Reality Factors (Proposed Sec.
795.115)

The Department is proposing to readopt the regulatory text of Sec.
795.115 from the 2021 Rule, which provided six illustrative examples
demonstrating ``how the factors listed in Sec. 795.105(d) may be
analyzed under the facts presented'' in the examples, and is also
proposing to update one of those examples and add two new examples.
The example from the 2021 Rule that the Department is proposing to
update is the one in Sec. 795.115(b)(1). In the 2021 Rule, that
example provided that a logistics company ``installed, at its own
expense, a device that limits the maximum speed of the owner-operator's
vehicle and monitors the speed through GPS'' and that ``[t]he company
limits the owner-operator's speed in order to comply with federally
mandated motor carrier safety regulations and to ensure that she
complies with local traffic laws.'' 86 FR 1247 (Sec.
795.115(b)(1)(i)). The example advised that, in that scenario, the fact
that the company ``installed a device that limits and monitors the
speed of the owner-operator's vehicle does not change'' the conclusion
that the ``owner-operator exercises substantial control over key
aspects of her work, indicating independent contractor status.'' 86 FR
1247 (Sec. 795.115(b)(1)(ii)).
However, the Department is concerned that, although the Department
of Transportation may have previously considered a regulation requiring
speed limiting devices in trucks, it has not issued a specific
regulation implementing such a requirement. To avoid any unintended
confusion, the Department is proposing to revise this example so that
the scenario instead addresses a different transportation requirement.
The revised example (proposed Sec. 795.115(b)(1)) would provide that
``the logistics company requires the owner-operator to comply with
federally-mandated transportation safety rules requiring drug and
alcohol testing'' and that the ``fact that the company requires the
owner-operator to complete certain drug and alcohol testing does not
change'' the conclusion that the owner-operator exercises substantial
control over key aspects of her work, indicating independent contractor
status.
In addition, the Department is proposing to add two new examples
addressing the ``amount of skill required for the work'' factor. The
2021 Rule did not contain examples addressing the ``amount of skill
required for the work'' factor. Adding these two new examples would
ensure that the examples section provides guidance on all of the
factors identified in Sec. 795.105(d). The two new examples would be
located at Sec. 795.115(b)(4) and (5), and other examples in Sec.
795.115(b) from the 2021 Rule would be renumbered. Finally, the
Department is proposing to make a minor edit to one other example from
the 2021 Rule (changing ``rewrites'' to ``revises'' in the example that
would be located at Sec. 795.115(b)(7)).
Each example would provide a set of facts followed by an
``Application'' section discussing how a particular factor would apply
to those facts and whether the factor would indicate employee or
independent contractor status under those facts. 86 FR 1247-48 (Sec.
795.115(b)); see also 86 FR 1208 (``[E]ach illustrative example focuses
on the classification favored by a specific economic reality factor
within the context of the fact-specific scenario.''). The discussion in
each ``Application'' section would be ``limited to substantially
similar factual situations.'' 86 FR 1247 (Sec. 795.115(a)).
The Department stated in the 2024 Rule that ``examples are helpful
to workers and businesses alike.'' 89 FR 1724. Like the 2021 Rule, the
2024 Rule provides examples ``to illustrate the application of each
factor of the economic reality test as applied to various factual
scenarios.'' 89 FR 1722. Unlike the 2021 Rule, the 2024 Rule provides
the examples in the preamble rather than in the regulatory text;
following the discussion in the preamble of each factor are examples
applying the factor. The 2024 Rule explains that the examples ``provide
the greatest value by residing in the preamble to the final rule
following the detailed discussion of the relevant factor'' because such
``examples can provide a capstone for each section's discussion of the
relevant economic reality factor, rather than being disconnected from
that discussion and appearing only in regulatory text.'' 89 FR 1724.
And of course, the examples in the 2024 Rule illustrate how the 2024
Rule's economic reality factors apply, while the examples in the 2021
Rule illustrated how the 2021 Rule's economic reality factors applied.
There is no question that the public appreciates examples of how
the economic reality factors apply. The 2024 Rule's concern about
examples in the regulatory text ``being disconnected'' from the
preamble discussion of each factor appears to be overstated, however.
Upon further consideration, the Department believes that including the
examples in the regulatory text

[[Page 9959]]

would make them more accessible to the public, which is more likely to
refer to the regulatory text than the preamble. The regulatory text--
not the preamble--is what is published in the Code of Federal
Regulations. The examples would constitute a clearly delineated section
in that regulatory text following the discussion of the factors in the
regulatory text and would therefore not be meaningfully
``disconnected.''
Accordingly, the Department is proposing to readopt as Sec.
795.115 of the regulatory text the six illustrative examples that were
in the 2021 Rule (with updates to one example, the addition of two new
examples, and a minor edit to another example, all as explained above)
demonstrating how the proposed factors in Sec. 795.105(d) would apply.
The Department welcomes comments on additional illustrative examples,
including those addressing common general working arrangements that are
more likely to be deemed employment or contractor.

J. Proposed Changes to FMLA and MSPA Regulations

The Department is proposing to revise the regulations addressing
employee or independent contractor status under the FMLA and MSPA to
clarify that the analysis in part 795 applies when determining employee
or independent contractor status under those statutes too.
Both MSPA and the FMLA statutorily incorporate FLSA definitions
regarding the scope of employment. See 29 U.S.C. 1802(5) (providing
that the term ``employ'' for the purposes of MSPA has the meaning given
such term under section 3(g) of the FLSA); 29 U.S.C. 2611(3) (providing
that the terms ``employee'' and ``employ'' for purposes of the FMLA
have the same meanings given such terms in sections 3(e) and (g) of the
FLSA).\152\
---------------------------------------------------------------------------

\152\ See also Garcia-Celestino v. Ruiz Harvesting, Inc., 843
F.3d 1276, 1287 (11th Cir. 2016) (noting that when Congress enacted
MSPA, ``it adopted the same sweeping statutory `suffer or permit to
work' definition of the term `employ,' incorporating the FLSA
definition by reference'' (citing 29 U.S.C. 1802(5))); Mendel v.
City of Gibraltar, 727 F.3d 565, 569 (6th Cir. 2013) (``To answer
the question of whether [workers] fall within the scope of the
FMLA's definition of an `employee,' we must turn to the section of
the FLSA that addresses this issue.'' (citing 29 U.S.C. 2611(3))).
---------------------------------------------------------------------------

In addition, the Department's MSPA and FMLA regulations recognize
that the scope of employment under those statutes is determined by the
FLSA. The MSPA regulations state that ``employ,'' ``employer'', and
``employee'' are each given the meaning set forth in the FLSA. 29 CFR
500.20(h)(1)-(3) (citing 29 U.S.C. 203(d), (e), and (g)). The MSPA
regulations add that ``[t]he definition of the term employ may include
consideration of whether or not an independent contractor or employment
relationship exists under the Fair Labor Standards Act.'' 29 CFR
500.20(h)(4). The FMLA regulations reiterate that the definitions of
``employ'' and ``employee'' come from the FLSA. 29 CFR 825.102,
825.105(a). And in AI 2015-1 (which was later rescinded as explained
above), the Department advised that the FLSA analysis that it provided
``should also be applied in determining whether a worker is an employee
or an independent contractor in cases arising under [MSPA] and the
[FMLA]'' because both statutes adopt the FLSA's definition of
``employ.''
Both MSPA and the FMLA thus support applying to those statutes the
same analysis that the Department applies for determining employee or
independent contractor status under the FLSA. In addition, applying one
analysis across the three statutes will encourage consistent results
and will provide a simpler approach for employers, businesses, and
workers in determining their rights and obligations under the statutes.
In the 2021 and 2024 rulemakings, the Department received comments
supporting a uniform analysis for determining employee or independent
contractor status across federal laws. Although only Congress can
achieve that, where a uniform analysis is consistent with the statutes,
as it would be with the FLSA, MSPA, and FMLA here, the Department
believes that regulations adopting a uniform analysis would not only be
beneficial, but also consistent with Congressional intent.
For the MSPA regulations, the Department is proposing to revise 29
CFR 500.20(h)(4) to remove the six economic reality factors (as well as
references to the factors and several case citations) and replace them
with a cross-reference providing that questions of employee or
independent contractor status under MSPA ``should be resolved in
accordance with the criteria set forth in Sec. Sec. 795.105 through
795.110 of this chapter.'' The Department would retain much of 29 CFR
500.20(h)(4), including the guidance on the impact of the employee
versus independent contractor inquiry in agriculture. The Department
welcomes comments on all aspects of its proposed revisions to 29 CFR
500.20(h)(4).
For the FMLA regulations, the Department is proposing to revise the
definition of ``Employee'' in 29 CFR 825.102. Paragraph (1) of that
definition provides: ``The term employee means any individual employed
by an employer[.]'' The Department is proposing to revise paragraph (1)
so that it would read: ``The term employee means any individual
employed by an employer, and the criteria set forth in Sec. Sec.
795.105 through 795.110 of this chapter apply to any determination of
whether an individual is an employee or independent contractor[.]'' The
Department is also proposing to revise 29 CFR 825.105(a) by adding the
following sentence to the end of the general guidance currently located
in that provision: ``The criteria set forth in Sec. Sec. 795.105
through 795.110 of this chapter apply to any determination of whether
an individual is an employee or independent contractor.'' These
revisions would incorporate into the FMLA regulations the analysis for
determining employee or independent contractor classification in part
795.
In addition, the Department is proposing to delete the sentence in
29 CFR 825.105(a) advising that ``[m]ere knowledge by an employer of
work done for the employer by another is sufficient to create the
employment relationship.'' The Department added this sentence in the
1995 FMLA final rule as part of ``a more general discussion'' of the
employment relationship in the context of counting employees for
determining coverage.\153\ The purpose of this NPRM's proposed
revisions to the FMLA regulations is to confirm that the multi-factor
analysis in 29 CFR part 795 would apply when determining an
individual's classification as an employee or independent contractor
under the FMLA. The Department is concerned that retaining a statement
in 29 CFR 825.105(a) that mere knowledge may create an employment
relationship could be viewed as inconsistent with considering ``the
circumstances of the whole activity'' when determining employee or
independent contractor status, Rutherford, 331 U.S. at 730, as well as
the multi-factor analysis set forth herein in proposed 29 CFR part 795,
and thus could cause parties to not apply the analysis as the
Department intends. Deleting the sentence from 29 CFR 825.105(a) would
help to ensure that the analysis in 29 CFR part 795 applies under the
FMLA.
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\153\ 60 FR 2184; see 29 U.S.C. 2611(4)(A)(i) (defining
``employer'' as any person ``who employs 50 or more employees for
each working day during each of 20 or more calendar workweeks in the
current or preceding calendar year'').
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The Department welcomes comments on all aspects of its proposed
revisions to 29 CFR 825.102 and 825.105(a).

[[Page 9960]]

K. Severability

The Department is proposing to readopt as Sec. 795.120 the
regulatory text from the 2021 Rule which provided that any provision of
part 795 found to be invalid or unenforceable ``shall be construed so
as to continue to give the maximum effect to the provision permitted by
law, unless such holding shall be one of utter invalidity or
unenforceability, in which event the provision shall be severable from
this part and shall not affect the remainder thereof.'' 86 FR 1248
(Sec. 795.120).
The 2021 Rule noted that the Department did not receive any
comments on the severability provision that it had proposed and adopted
that provision as proposed. 86 FR 1209. The 2024 Rule adopted the same
severability provision, noting that ``[n]o commenter questioned the
well-settled legal principle that one portion of a rule may remain
operative if another portion is deemed impermissible as long as the
agency would independently adopt the remaining portion and the
remaining portion can operate sensibly without the impermissible
portion.'' 89 FR 1725. Accordingly, the Department's proposal contains
the same severability provision at Sec. 795.120.
Relatedly, the Department is proposing in this rulemaking to both
rescind the 2024 Rule and readopt the regulatory provisions of the 2021
Rule by revising 29 CFR part 795 to incorporate those provisions. In
other words, rescission of the 2024 Rule would be separate from
readoption of the regulations regarding employee or independent
contractor status promulgated in the 2021 Rule. Thus, the Department
intends that, if the regulations that it finally adopts as 29 CFR part
795 at the culmination of this rulemaking are thereafter invalidated,
enjoined, or otherwise not put into effect, then the 2024 Rule and its
regulations would nonetheless be rescinded for all the reasons set
forth by the Department in this rulemaking. The Department recognizes
that, in such a case, it would have no generally-applicable regulations
addressing employee or independent contractor status under the FLSA
(which was the case for 83 years following the FLSA's enactment until
the 2021 Rule). If that were the case, the Department would provide
subregulatory guidance for stakeholders. Additionally, the Department
notes that the 2024 Rule expressed a similar intent for its rescission
of the 2021 Rule then to be separate from the affirmative regulations
that it promulgated at 29 CFR part 795. See 89 FR 1725 (explaining that
``the rescission of the 2021 IC Rule set forth in this final rule is
separate and severable from the new part 795 regulations for
determining employee or independent contractor status under the FLSA
set forth in this final rule'').
Finally, the Department's proposed changes to the FMLA and MSPA
regulations are separate from its proposed changes to the FLSA
regulations in 29 CFR part 795. Thus, if the Department's proposed
changes to the FLSA regulations in 29 CFR part 795 are finalized but
thereafter invalidated, enjoined, or otherwise not put into effect, in
whole or in part, then the Department intends that its proposed changes
to the FMLA and MSPA regulations would remain in effect.

IV. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq.,
and its attendant regulations, 5 CFR part 1320, require the Department
to consider the agency's need for its information collections, their
practical utility, as well as the impact of paperwork and other
information collection burdens imposed on the public, and how to
minimize those burdens. The PRA typically requires an agency to provide
notice and seek public comments on any proposed collection of
information contained in a proposed rule. See 44 U.S.C. 3506(c)(2)(B);
5 CFR 1320.8.
This NPRM does not contain a collection of information subject to
OMB approval under the Paperwork Reduction Act. The Department welcomes
comments on this determination.

V. Review Under Executive Orders 12866, 13563, and 14192

Among other requirements, Executive Order 12866 requires agencies
to submit ``significant regulatory actions'' to the Office of
Management and Budget's (OMB) Office of Information and Regulatory
Affairs (OIRA) for review. Section 3(f) of E.O. 12866 defines a
``significant regulatory action'' as a regulatory action that is likely
to result in a rule that may: (1) have an annual effect on the economy
of $100 million or more, or adversely affect in a material way a sector
of the economy, productivity, competition, jobs, the environment,
public health or safety, or state, local, or tribal governments or
communities; (2) create serious inconsistency or otherwise interfere
with an action taken or planned by another agency; (3) materially alter
the budgetary impact of entitlements, grants, user fees or loan
programs or the rights and obligations of recipients thereof; or (4)
raise novel legal or policy issues arising out of legal mandates, the
President's priorities, or the principles set forth in the Executive
Order. OIRA has determined that this rule is economically significant
under section 3(f)(1) of Executive Order 12866.
Executive Order 13563 directs agencies to, among other things,
propose or adopt a regulation only upon a reasoned determination that
its benefits justify its costs; the regulation is tailored to impose
the least burden on society, consistent with achieving the regulatory
objectives; and in choosing among alternative regulatory approaches,
the agency has selected those approaches that maximize net benefits.
See 76 FR 3821 (Jan. 21, 2011). E.O. 13563 recognizes that some costs
and benefits are difficult to quantify and provides that, where
appropriate and permitted by law, agencies may consider and discuss
qualitative values that are difficult or impossible to quantify,
including equity, human dignity, fairness, and distributive impacts.
Id.
Executive Order 14192, titled ``Unleashing Prosperity Through
Deregulation,'' was issued on January 31, 2025. This rule, if finalized
as proposed, is expected to be an E.O. 14192 deregulatory action, as
the Department estimates that perpetual cost savings attributable to
the rule--including reduced compliance costs and reduced litigation
costs--would exceed one-time regulatory familiarization costs. The
analysis provided below outlines the impacts that the Department
anticipates may result from this proposed rule and was prepared
pursuant to the above-mentioned Executive orders.

A. Need for Rulemaking

[[Page 9961]]

participated in the Department's recent rulemakings on this topic.
Accordingly, in this rulemaking, the Department is proposing to
rescind the 2024 Rule and largely readopt the 2021 Rule,\154\ which the
Department has successfully applied in WHD investigations.\155\
Additionally, the Department is proposing to revise the regulations
addressing employee or independent contractor status under MSPA and the
FMLA so that the analysis in part 795 applies when determining employee
or independent contractor status under those statutes too.
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\154\ As explained in section III, the Department proposes to
readopt the 2021 Rule's FLSA guidance with a substantive edit to
proposed Sec. 795.105(b), one non-substantive edit to proposed
Sec. 795.105(d)(2)(iii), and a few small modifications to the
illustrative examples in proposed Sec. 795.115.
\155\ See supra, n. 81.
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B. Overview of Estimated Effects

The Department believes that replacing the 2024 Rule with the 2021
Rule is likely to improve the welfare of both workers and businesses on
the whole. With respect to businesses, the Department believes that the
improved clarity offered by the rule would increase the efficiency of
the labor market, allowing businesses to be more productive and
decreasing their litigation burden. With respect to workers, broadly
speaking, this rule would likely have three categories of potential
effects.
First, this rulemaking would make it easier for the millions of
individuals who currently work as independent contractors and those who
hire them to comply with the law. Compliance cost savings would be
shared between the independent contractors and businesses for which
they work.
Second, legal clarity may encourage firms to create independent
contractor arrangements for roles that did not previously exist, which
may attract workers who otherwise would not work in that field. Such
job creation would benefit workers and firms alike.\156\
---------------------------------------------------------------------------

\156\ See L. Palagashvili, Consequences of Restricting
Independent Work and the Gig Economy, Mercatus Center (2022),
available at https://www.mercatus.org/research/policy-briefs/consequences-restricting-independent-work-and-gig-economy.
---------------------------------------------------------------------------

Third, as a result of the improved clarity of the proposed rule,
businesses might convert some existing positions from employee status
to independent contractor status. Although the Department maintains
that the streamlined core factor analysis proposed in this rule is
neither more nor less permissive of independent contractor
relationships as compared to the analysis that the Department is
currently applying,\157\ the Department expects that this proposed rule
could reduce any ``voluntary'' employment classification. This refers
to situations where businesses classify workers who may be in business
for themselves (and thus independent contractors) as employees to avoid
legal risk (in the event that the business does not satisfy the FLSA's
requirements).\158\ This rule would provide the greatest legal
certainty to employers classifying a worker as an independent
contractor if the worker substantially controls the work and has a
meaningful opportunity for profit or loss based on initiative or
investment--a scenario that, to the Department's knowledge, no federal
appellate court has ever found to be an FLSA employment relationship.
---------------------------------------------------------------------------

\157\ As explained in section I.F. of this NPRM, the Department
is currently enforcing its pre-2021 guidance on employee and
independent contractor status, which it has previously characterized
as ``neither more nor less permissive of independent contractor
relationships as compared to'' the 2021 Rule. See 86 FR 1240.
\158\ See Richard J. Reibstein, Lisa B. Petkun & Andrew J.
Rudolph, How Companies Can Minimize the Risks of Independent
Contractor Misclassification, 40 Tax Mgmt. Comp. Plan. J. 207 (Aug.
3, 2012), republished at https://www.jdsupra.com/legalnews/how-companies-can-minimize-the-risks-of-35626/ (discussing the
``voluntary reclassification'' of independent contractors and noting
that ``some lawyers and legal commentators routinely advise
businesses to cease using ICs or to reclassify all of their ICs as
employees to avoid the potential for misclassification liability'');
see also Daniel P. O'Meara, A Preventative Approach To Using
Independent Contractors, J. Accountancy (Sept. 1, 1997), https://www.journalofaccountancy.com/issues/1997/sep/prevent (advising
companies to ``resolve close cases by concluding the workers are
employees'' to avoid legal risk).
---------------------------------------------------------------------------

Businesses would only be expected to reclassify workers classified
as employees into independent contractors upon a determination that the
clarity provided by this rule materially shifts the balance of
tradeoffs, including legal risk. Any benefit to businesses of modified
classifications would need to outweigh the costs, including any
autonomy they cede to workers in such arrangements and any costs
associated with implementation or modifying the classification itself,
and such a relationship would need to be compatible with their business
models. Further, generally speaking, workers would have a choice of
whether to agree to the new independent contractor arrangement. The
overall effect of job conversion on workers would be ambiguous and
could vary from worker to worker, but the Department expects that any
reclassification of workers classified as employees into independent
contractors attributable to this rulemaking would be minimal, as the
Department is not aware of significant reclassification which occurred
following publication of the 2021 Rule. The Department welcomes
feedback from commenters on the extent of any worker reclassification
which occurred as a result of or following publication of the 2021
Rule.
The Department has attempted to place the magnitude of these
potential impacts into context. Drawing on the best available evidence
from the Contingent Worker Supplement (CWS), labor market studies of
flexible work (Mas and Pallais, 2017; Chen et al., 2019),\159\ and a
recent evaluation of a 2019 California law that changed the standard
for determining independent contractor classification in a manner that
restricted independent contracting \160\ (Palagashvili et al.,
2024),\161\ the Department estimates that the number of independent
contractors could increase by 1 to 3 percentage points if this proposal
were finalized. On today's labor force of approximately 25 million
workers who rely on independent contracting as their primary or
secondary job, this would represent between 0.25 million and 0.75
million additional independent contracting relationships, with a
central estimate of 0.5 million.\162\ The rationale for this estimate
is explained in greater detail in section V.E.3.
---------------------------------------------------------------------------

\159\ Alexandre Mas & Amanda Pallais, ``Valuing Alternative Work
Arrangements,'' 107 Am. Econ. Rev. 3722 (2017); Keith Chen et al.,
``The value of flexible work: Evidence from Uber drivers,'' 127 J.
of Political Econ. 2735 (2019).
\160\ See Assembly Bill No. 5 (``AB 5''), Ch. 296, 2019-2020
Reg. Sess. (Cal. 2019) (codifying the ``ABC'' test articulated in
Dynamex Operations W., Inc. v. Superior Court, 416 P.3d 1 (Cal.
2018)). California's ABC test presumes an individual worker is an
employee unless the potential employer can satisfy three elements:
absence of control of the worker, that the worker performs work
outside the employer's usual course of business, and that the worker
is customarily engaged in an independently established trade,
occupation, or business of the same nature as that involved in the
work performed.
\161\ Liya Palagashvili et al., ``Assessing the Impact of Worker
Reclassification: Employment Outcomes Post-California AB5,''
Mercatus Working Paper (2024), https://www.mercatus.org/research/working-papers/assessing-impact-worker-reclassification-employment-outcomes-post.
\162\ The Department believes that this 0.5 million figure
represents an appropriate estimate of the total number of new
independent contractor arrangements that could be created by this
proposed rule, in part because some individuals and businesses
operating in states with analyses that are more restrictive of
independent contracting, such as the ``ABC'' tests used in
California or Massachusetts, are unlikely to be affected by this
rulemaking.
---------------------------------------------------------------------------

The Department assumes that this increase would occur through new
labor force entry rather than through the reclassification of existing
employees. This assumption reflects Palagashvili et

[[Page 9962]]

al.'s findings that, while AB 5 reduced independent contracting, there
was no statistically significant evidence that it increased traditional
employment, contrary to the impact that may have been anticipated as
the law discouraged independent contractor classification.\163\ This
suggests few independent contractors were ``switched'' to traditional
employees as a result of California's law. The Department believes the
converse would be true here--that the reclassification of employees to
independent contractors would remain small while new entry of
independent contractors would be more significant (though lower, in
terms of magnitude, than the converse impact under AB 5). Indeed, the
proposed rule's effect on reclassification should be even smaller than
under AB 5 because, unlike AB 5, it would not change the underlying
classification standard (i.e., the economic reality test); it would
merely clarify the test. As such, permissible reclassification would be
limited to workers who already possess the characteristics of being in
business for themselves but are classified as employees due to
perceived legal uncertainty. Meanwhile, employers who are holding back
from engaging independent contractors would have the clarity to expand
opportunities, creating genuine new participation.
---------------------------------------------------------------------------

\163\ Palagashvili et al., supra n.161.
---------------------------------------------------------------------------

The Department acknowledges that these estimates are subject to
significant uncertainty. The precise number of new entrants, the
distribution of reclassified positions across industries and firm
sizes, and the demographic characteristics of affected workers cannot
be reliably projected. Nevertheless, by presenting order-of-magnitude
estimates, the Department seeks to provide transparency about the
potential scope of impacts while inviting public comment to refine
underlying assumptions.
The Department estimates that the regulatory familiarization costs
of this proposed rule would be $488.2 million in the first year.
However, the Department estimates that this proposed rule would yield
$682.7 million dollars in cost savings per year.\164\ Over a 10-year
analytic time horizon, this results in an annualized net cost savings
of $627.2 million and $617.2 million using a 3 percent and 7 percent
discount rate respectively. In addition, and as discussed below, the
Department estimates that the total undiscounted benefits to workers
from new labor force entry could amount to $17.6 billion over 10 years,
with an additional $14.9 billion accruing to broader society in the
form of taxes collected on the earnings of the new labor These earnings
are estimated at $87.79 billion over 10 years as described in section
V.E.3 below. On an annualized basis, the Department estimates that the
benefits from increased labor force participation could amount to $3.25
billion at a 7 percent discount rate, depending on the number of new
entrants and their characteristics.
---------------------------------------------------------------------------

\164\ The Department notes that this might be an overestimate of
the effects of this rulemaking to the extent that some workers and
businesses in certain states might not be affected by this
rulemaking.
---------------------------------------------------------------------------

C. Current Number of Independent Contractors

The Department has estimated that there were 11.9 million
independent contractors in the United States in 2023, the most recent
year of data available.\165\ As explained above, the Department
believes the number of independent contractors for purposes of the
FLSA, MSPA, and FMLA would increase as a result of this rule. There are
a variety of estimates of the number of independent contractors, and
these span a wide range based on methodologies and how the population
is defined. The Department believes that the Current Population Survey
(CPS) Contingent Worker Supplement (CWS) is the most appropriate
estimate of the number of independent contractors; however, there are
potential biases in these data as noted. Additionally, estimates from
other sources are presented to demonstrate the potential range.
---------------------------------------------------------------------------

\165\ U.S. Bureau of Labor Statistics, Contingent and
Alternative Employment Arrangements--July 2023, USDL-24-2267 (Nov.
8, 2024), https://www.bls.gov/news.release/pdf/conemp.pdf.
---------------------------------------------------------------------------

1. Department of Labor Estimate
The CPS is conducted by the U.S. Census Bureau and published
monthly by the Bureau of Labor Statistics (BLS). The sample includes
approximately 60,000 households and is nationally representative.
Periodically since 1995, and most recently in 2023, the CPS has
included a supplement to collect data on contingent and alternative
employment arrangements. Based on the CWS, there were 11.9 million
independent contractors in 2023, amounting to 7.4 percent of
workers.\166\
---------------------------------------------------------------------------

\166\ Id.
---------------------------------------------------------------------------

The BLS's estimate of independent contractors includes workers
``who are identified as independent contractors, independent
consultants, or freelance workers, regardless of whether they are
identified as wage and salary workers or self-employed.'' Two questions
are asked to identify independent contractors.
1. Workers reporting that they are self-employed are asked: ``Are
you self-employed as an independent contractor, independent consultant,
freelance worker, or something else (such as a shop or restaurant
owner)?''
2. Workers reporting that they are wage and salary workers are
asked: ``Last week, were you working as an independent contractor, an
independent consultant, or a freelance worker?''
The Department believes that the Current Population Survey (CPS)
Contingent Worker Supplement (CWS) offers an appropriate lower bound
for the number of independent contractors. However, there are several
possible limitations in this data. It is important to note that
independent contractors are identified in the CWS in the context of the
respondent's main job (i.e., the job with the most hours).\167\
Therefore, the estimate of independent contractors does not include
those who may be employees for their primary jobs, but also work as
independent contractors. This is likely the largest limiting factor in
the data when trying to estimate the population of workers doing any
work as an independent contractor. For example, Lim et al. (2019)
estimates that for 48 percent of independent contractors, such work is
their primary source of income.\168\ Applying this estimate to the 11.9
million independent contractors estimated from the CWS results in 24.8
million independent contractors.\169\
---------------------------------------------------------------------------

\167\ While self-employed independent contractors are identified
by the worker's main job, other independent contractors answered yes
to the CWS question about working as an independent contractor last
week. Although the survey question does not ask explicitly about the
respondent's main job, it follows questions asked about the
respondent's main job.
\168\ Lim et al., Independent Contractors in the U.S.: New
Trends from 15 Years of Administrative Tax Data (2019), https://www.irs.gov/pub/irs-soi/19rpindcontractorinus.pdf.
\169\ 11.9 million independent contractors * (1 + (52 / 48)).
---------------------------------------------------------------------------

The CPS CWS's large sample size results in small sampling error.
However, the questionnaire's design may result in some non-sampling
errors. For example, one potential limitation of the data is that the
CWS includes information to calculate estimates of the prevalence of
independent contractors at a single point in time, that is, during a
specified week (generally the week prior to the interview). These
numbers will thus underestimate the prevalence of independent
contracting over a longer timeframe, which may better capture the size
of the population.\170\ For example,

[[Page 9963]]

Farrell and Greig (2016) used a randomized sample of 1 million Chase
customers to estimate prevalence of the Online Platform Economy.\171\
They found that ``[a]lthough 1 percent of adults earned income from the
Online Platform Economy in a given month, more than 4 percent
participated over the three-year period.'' However, a factor of four is
likely too large of an adjustment because a 3-year period does not
represent the current workforce any more than does a 1-week period, and
because there is likely more week-to-week volatility in participation
in the Online Platform Economy than among independent contractors.
---------------------------------------------------------------------------

\170\ In any given week, the total number of independent
contractors would have been roughly the same, but the identity of
the individuals who do it for less than the full year would likely
vary. Thus, the number of unique individuals who are independent
contractors would exceed the one-week estimate.
\171\ D. Farrell & F. Greig, Paychecks, Paydays, and the Online
Platform (2016), JPMorgan Chase Institute, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2911293. The authors define the Online
Platform Economy as ``economic activities involving online
intermediaries.'' This includes ``labor platforms'' that ``connect
customers with freelance or contingent workers'' and ``capital
platforms'' that ``connect customers with individuals who rent
assets or sell goods peer-to-peer.'' As such, this study encompasses
data on income sources that the Department acknowledges might not be
a one-to-one match with independent contracting and could also
include work that is part of an employment relationship. However,
the Department believes that including data on income earned through
online platforms is useful when discussing the potential magnitude
of independent contracting.
---------------------------------------------------------------------------

The CWS also uses proxy responses, which may underestimate the
number of independent contractors. The RAND American Life Panel (ALP)
survey conducted a supplement in 2015 to mimic the CPS CWS
questionnaire. The results of the survey were summarized by Katz and
Krueger (2018).\172\ This survey found that independent contractors
comprise 7.2 percent of workers.\173\ Katz and Krueger identified two
primary factors to explain the 0.5 percentage point difference in
magnitude between the 2017 CWS and the ALP: (1) cyclical conditions and
(2) differences in survey methods (e.g., the use of self-responses only
in the ALP supplement). The first factor does not reflect a bias in
either survey or estimate, whereas the second factor may reflect an
underestimate in the CWS estimate. Therefore, the Department believes a
reasonable upper-bound on the potential bias due to the use of proxy
responses in the CWS is 0.5 percentage points (7.2 versus 6.7).\174\
---------------------------------------------------------------------------

\172\ L. Katz & A. Kreuger, The Rise and Nature of Alternative
Work Arrangements in the United States, 1995-2015 (2018), https://scholar.harvard.edu/lkatz/publications/rise-and-nature-alternative-work-arrangements-united-states-1995-2015.
\173\ The estimate is 9.6 percent without correcting for
overrepresentation of self-employed workers or multiple job holders.
Id. at 31.
\174\ In addition to the use of proxy responses, this difference
is also due to cyclical conditions. The impacts of these two are not
disaggregated for independent contractors, but if we applied the
relative sizes reported for all alternative work arrangements, we
would get 0.36 percentage point difference due to proxy responses.
Additionally, it should be noted that this may not entirely be a
bias. It stems from differences in independent contracting reported
by proxy respondents and actual respondents. As Katz and Krueger
explain, this difference may be due to a ``mode'' bias or proxy
respondents may be less likely to be independent contractors.
---------------------------------------------------------------------------

Another potential source of bias in the CWS data is that some
respondents may not self-identify as independent contractors. In the
CWS, one person answers the survey questions about everyone living in
the household. Thus, respondents provide data about themselves and
others living with them. People who report about other household
members may not be able to answer all questions about others'
employment arrangements.\175\
---------------------------------------------------------------------------

\175\ U.S. Bureau of Labor Statistics, Electronically mediated
work: new questions in the Contingent Worker Supplement, Monthly
Labor Review (Sept. 2018), https://www.bls.gov/opub/mlr/2018/article/electronically-mediated-work-new-questions-in-the-contingent-worker-supplement.htm.
---------------------------------------------------------------------------

Conversely some workers misclassified as independent contractors
may answer in the affirmative, despite not truly being independent
contractors. The prevalence of misclassification is unknown, but it is
generally agreed to be common. The National Employment Law Project
conducted a literature review of state-level audits estimating
misclassification of employees as independent workers and found that
the share of employers misclassifying workers ranged from 10 percent to
30 percent.\176\
---------------------------------------------------------------------------

\176\ National Employment Law Project, Independent Contractor
Misclassification Imposes Huge Costs on Workers and Federal and
State Treasuries (2020), https://www.nelp.org/wp-content/uploads/Independent-Contractor-Costs.pdf.
---------------------------------------------------------------------------

Because reliable data on the potential magnitude of these biases
are unavailable, the Department has not calculated any estimates of how
these biases may impact the estimated number of independent
contractors.
2. Range of Estimates in the Literature
To further consider the range of estimates available, the
Department conducted a literature review, the findings of which are
presented in Table 1. Other studies were also considered but are
excluded from this table because the study population was much broader
than just independent contractors or because they are limited to one
state.\177\ The RAND ALP \178\ and the General Social Survey's (GSS's)
Quality of Worklife (QWL) \179\ supplement are widely cited alternative
estimates. The W.E. Upjohn Institute for Employment Research conducted
large-scale telephone surveys to obtain their estimates on the
independent contractor population.\180\ However, the Department chose
to use the CWS as our primary estimate over these other sources
primarily because of the significantly larger sample sizes.
---------------------------------------------------------------------------

\177\ See, e.g., McKinsey Global Institute, Independent Work:
Choice, Necessity, and the Gig Economy (2016), https://www.mckinsey.com/featured-insights/employment-and-growth/independent-work-choice-necessity-and-the-gig-economy; Kelly
Services, Agents of Change (2015), https://www.kellyservices.com/global/siteassets/3-kelly-global-services/uploadedfiles/3-kelly_global_services/content/sectionless_pages/kocg1047720freeagent20whitepaper20210x21020final2.pdf; Robles &
McGee, Exploring Online and Offline Informal Work: Findings from the
Enterprising and Informal Work Activities (EIWA) Survey (2016),
https://doi.org/10.17016/FEDS.2016.089; Upwork, Freelancing in
America (2019); Washington Department of Commerce, Independent
Contractor Study (2019), https://deptofcommerce.app.box.com/v/independent-contractor-study; Farrell & Greig, supra n. 171; MBO
Partners, State of Independence in America (2016), https://www.mbopartners.com/state-of-independence/mbo-partners-state-of-independence-in-america-2016/; Abraham et al., Measuring the Gig
Economy: Current Knowledge and Open Issues (2018), https://www.nber.org/papers/w24950; Collins et al., Is Gig Work Replacing
Traditional Employment? Evidence from Two Decades of Tax Returns
(2019), https://www.russellsage.org/research/outputs/gig-work-replacing-traditional-employment-evidence-two-decades-tax-returns;
Gitis et al., The Gig Economy: Research and Policy Implications of
Regional, Economic, and Demographic Trends, American Action Forum
(2017), https://www.americanactionforum.org/research/gig-economy-research-policy-implications-regional-economic-demographic-trends/;
Dourado & Koopman, Evaluating the Growth of the 1099 Workforce,
Mercatus Center (2015), https://www.mercatus.org/publication/evaluating-growth-1099-workforce.
\178\ L. Katz & A. Kreuger, The Rise and Nature of Alternative
Work Arrangements in the United States, 1995-2015 (2018), https://scholar.harvard.edu/lkatz/publications/rise-and-nature-alternative-work-arrangements-united-states-1995-2015.
\179\ Abraham et al., Measuring the Gig Economy: Current
Knowledge and Open Issues (2018), https://www.nber.org/papers/w24950.
\180\ K.G. Abraham et al., The Independent Contractor Workforce:
New Evidence on Its Size and Composition and Ways to Improve Its
Measurement in Household Surveys (2023), https://www.nber.org/papers/w30997.
---------------------------------------------------------------------------

Jackson et al. (2017) \181\ and Lim et al. (2019) \182\ use tax
information to estimate the prevalence of independent contracting. In
general, studies using tax data tend to show an increase in prevalence
of independent contracting over time whereas survey data do not. The
use of tax data has some advantages

[[Page 9964]]

and disadvantages over survey data. Advantages include large sample
sizes, the ability to link information reported on different records,
the reduction in certain biases such as recall bias, and records of all
activity throughout the calendar year (the CWS only references one
week). Disadvantages are that independent contractor status needs to be
inferred; there is likely an underreporting bias (i.e., some workers do
not file taxes); researchers are generally trying to match the IRS
definition of independent contractor; and the estimates include
misclassified independent contractors. A major disadvantage of using
tax data for this NPRM is that the data are not publicly available and
thus cannot be verified or adjusted as necessary.
---------------------------------------------------------------------------

\181\ Jackson, Looney & Ramnath, The Rise of Alternative Work
Arrangements: Evidence and Implications for Tax Filing and Benefit
Coverage (2017), https://home.treasury.gov/system/files/131/WP-114.pdf.
\182\ Lim et al., supra n.168.

Table 1--Summary of Estimates of Independent Contracting
----------------------------------------------------------------------------------------------------------------
Percent of
Source Method Definition workers (%) Sample size Year
----------------------------------------------------------------------------------------------------------------
CPS CWS...................... Survey............. Independent 7.4 ~60,000........ 2023
contractor,
consultant or
freelance
worker.
ALP.......................... Survey............. Independent 7.2 6,028.......... 2015
contractor,
consultant or
freelance
worker.
GSS QWL...................... Survey............. Independent 14.10 2,538.......... 2014
contractor,
consultant or
freelancer.
Jackson et al................ Tax data........... Independent \a\ 3.3 ~5.9 million 2014
contractor, \b\.
household
worker.
Lim et al.................... Tax data........... Independent 8.1 1% of 1099-MISC 2016
contractor. and 5% of 1099-
K.
W.E. Upjohn Institute for Survey............. Independent 15 ~61,000........ 2023
Employment Research. contractor.
----------------------------------------------------------------------------------------------------------------
\a\ Summation of (1) 2,132,800 filers with earnings from both wages and sole proprietorships and expenses less
than $5,000, and (2) 4,125,200 primarily sole proprietorships with less than $5,000 in expenses.
\b\ Estimate based on a 10 percent sample of self-employed workers and a 1 percent sample of W2 recipients.

D. Costs

1. Regulatory Familiarization Costs
Regulatory familiarization costs represent direct costs to
businesses associated with reviewing a new regulation. To estimate the
total regulatory familiarization costs imposed if this proposal is
finalized, the Department used (1) the number of establishments and
government entities; (2) the wage rate for the employees reviewing the
rule; and (3) the number of hours that it estimates employers would
spend reviewing the rule. This section presents the calculation for
establishments first and then the calculation for independent
contractors.
Regulatory familiarization costs may be a function of the number of
establishments or the number of firms.\183\ Presumably, the
headquarters of a firm would conduct the regulatory review for
businesses with multiple locations and may also require some locations
to familiarize themselves with the regulation at the establishment
level. Other firms may either review a rule to consolidate key
takeaways for their affiliates or they may rely entirely on outside
experts to evaluate a rule and relay the relevant information to their
organization (e.g., a chamber of commerce). The Department used the
number of establishments to estimate the fundamental pool of regulated
entities--which is larger than the number of firms. This assumes that
regulatory familiarization occurs at both the headquarters and
establishment levels.
---------------------------------------------------------------------------

\183\ An establishment is commonly understood as a single
economic unit, such as a farm, a mine, a factory, or a store, that
produces goods or services. Establishments are typically at one
physical location and engaged in one, or predominantly one, type of
economic activity for which a single industrial classification may
be applied. An establishment contrasts with a firm, or a company,
which is a business and may consist of one or more establishments.
See BLS, ``Quarterly Census of Employment and Wages: Concepts,''
https://www.bls.gov/opub/hom/cew/concepts.htm.
---------------------------------------------------------------------------

To estimate the number of establishments incurring regulatory
familiarization costs, the Department used the Statistics of U.S.
Businesses (SUSB).\184\ In 2021, the most recent year available, there
were 8.3 million establishments. These data were supplemented with the
2022 Census of Government that reports 90,888 local government
entities, and 51 state and federal government entities.\185\ The number
of establishments and governments was 8,389,450.
---------------------------------------------------------------------------

\184\ U.S. Census Bureau, 2021 SUSB Annual Data Tables by
Establishment Industry, https://www.census.gov/data/tables/2021/econ/susb/2021-susb-annual.html.
\185\ U.S. Census Bureau, 2022 Census of Governments, https://www.census.gov/data/tables/2022/econ/gus/2022-governments.html.
---------------------------------------------------------------------------

This universe is then restricted to the subset of establishments
that engage independent contractors. In 2019, Lim et al. used extensive
IRS data to model the independent contractor market and found that 34.7
percent of firms hire independent contractors.\186\ These data are
based on annual tax filings, so the dataset includes firms that may
contract for only parts of a year. Multiplying the universe of
establishments and governments by 35 percent results in 2.91 million
entities.
---------------------------------------------------------------------------

\186\ See Lim et al., supra n.168, at 66 (Table 10: Firm sample
summary statistics by year (2001-2015)).
---------------------------------------------------------------------------

The Department assumes that a Compensation, Benefits, and Job
Analysis Specialist (SOC 13-1141) (or a staff member in a similar
position) would review the rule.\187\ According to the most recent
Occupational Employment and Wage Statistics (OEWS) estimates, these
workers had a mean wage of $39.86 per hour. Given the proposed
clarification to the Department's interpretation of who is an employee
and who is an independent contractor, the Department assumes that it
would take on average about 1 hour to review a final rule. Based on
prior rulemakings, the Department believes that an hour, on average, is
appropriate. Assuming benefits are paid at a rate of 46 percent of the
base wage, and overhead costs are 17 percent of the

[[Page 9965]]

base wage, the reviewer's effective hourly rate would be $64.97; thus,
the average cost per establishment would be $64.97.\188\ Therefore, the
undiscounted regulatory familiarization costs for establishments in
Year 1 if the proposed rule is finalized are estimated to be $189.1
million ($64.97 x 2,911,139). Regulatory familiarization costs in
future years are assumed to be de minimis. This amounts to a 10-year
annualized cost of $19.9 million at a discount rate of 7 percent.
---------------------------------------------------------------------------

\187\ A Compensation/Benefits Specialist ensures company
compliance with federal and state laws, including reporting
requirements; evaluates job positions, determining classification,
exempt or non-exempt status, and salary; plans, develops, evaluates,
improves, and communicates methods and techniques for selecting,
promoting, compensating, evaluating, and training workers. See BLS,
Occupational Employment and Wage Statistics Query System, https://data.bls.gov/oes/#/industry/000000 (last updated May 2024).
\188\ BLS, Employer Costs for Employee Compensation--September
2025, Employer Costs for Employee Compensation Summary--2025 Q02
Results [Benefits rate based on compensation rates for civilian
workers].
---------------------------------------------------------------------------

For regulatory familiarization costs for independent contractors,
the Department used its estimate of up to 24.8 million independent
contractors and assumed each independent contractor would spend an
average of 30 minutes to review the regulation. The average time spent
by independent contractors is estimated to be shorter than for
establishments and governments. This difference is in part because the
Department believes independent contractors would likely rely on
summaries of the key elements of a rule published by the Department,
worker advocacy groups, media outlets, and accountancy and consultancy
firms, as has occurred with other rulemakings. This time is valued at
$24.12, which is the median hourly wage rate for independent
contractors in the CWS of $23.94 updated to 2024 dollars using the
gross domestic product (GDP) deflator.^{189 190} Therefore, the
undiscounted regulatory familiarization costs to independent
contractors in Year 1 are estimated to be $299.01 million ($24.12 x 0.5
hour x 24.8 million). The total one-time undiscounted regulatory
familiarization costs for establishments, governments, and independent
contractors are estimated to be $488.2 million. Regulatory
familiarization costs in future years are assumed to be de minimis.
Employers and independent contractors would continue to familiarize
themselves with the applicable legal framework even if this proposal is
not finalized, so this rulemaking is not expected to impose costs after
the first year. This amounts to a 10-year annualized cost of $50.3
million at a discount rate of 3 percent or $52.2 million at a discount
rate of 7 percent.
---------------------------------------------------------------------------

\189\ The Department's calculation of the median hourly wage is
based on the July 2023 Contingent and Alternative Employment
Arrangements release, where the median weekly earnings for full-time
contingent workers is $838 and the definition of fulltime work
status is 35 hours or more per week ($838 / 35 hours = $23.94).
\190\ In the 2021 Rule the Department included an additional 45
percent for benefits and 17 percent for overhead. These adjustments
have been removed here, because independent contractors do not
usually receive employer-provided benefits and generally have
overhead costs built into their hourly rate.
---------------------------------------------------------------------------

2. Other Costs
There may be other costs associated with this NPRM that have not
been quantified due to uncertainties or data limitations. The
Department invites public comments and data to address this issue.

E. Benefits and Cost Savings

This NPRM, if finalized, is expected to result in cost savings to
firms, including increased clarity, reduced misclassification, reduced
litigation, and increased efficiency. A final rule adopting the
proposal in this NPRM could increase clarity concerning whether a
worker is an independent contractor under the FLSA, reducing burden on
firms to classify workers, misclassification, and litigation costs.
Firms could spend less time analyzing independent contractor status,
saving internal administrative costs. Additionally, workers may benefit
from having more clarity about their rights related to their work
status. Finally, due to increased clarity, there could be a reduction
in FLSA litigation involving alleged misclassification.
1. Increased Clarity
This proposed rule, if finalized, would increase clarity concerning
whether a worker is classified as an employee or as an independent
contractor under the FLSA. This would reduce the burden faced by
employers, potential employers, and workers in understanding the
distinction and how the working relationship should be classified. It
is unclear exactly how much time would be saved, but the Department
provides some quantitative estimates to provide a sense of the
magnitude. The importance of increased clarity is noted by an article
authored by Caitlin Kapolas on behalf of Lift HCM which notes that
misclassification due to lack of clarity can result in fines, back
taxes, and potential lawsuits--all consequences businesses can avoid
with proper worker classification.\191\
---------------------------------------------------------------------------

\191\ Caitlin Kapolas, Lift HCM, Independent Contractor vs.
Employee: Key Differences and Compliance Tips (2025), https://lifthcm.com/article/independent-contractor-vs-employees.
---------------------------------------------------------------------------

The Department expects that a final rule adopting this proposal
would produce beneficial cost savings by clarifying the classification
process. To quantify this benefit, the following variables need to be
defined and estimated: (1) the number of new employer-worker
relationships being assessed to determine the appropriate
classification; (2) the amount of time saved per assessment; and (3) an
average wage rate for the time spent. The Department estimates this
will result in an undiscounted annual cost savings of $682.7 million.
The Department began with its estimate of the number of independent
contractors as the basis for estimating the number of new
relationships. As discussed above, according to the CWS, there were
11.9 million workers in 2023 who were independent contractors in their
primary job. Adjusting this figure to account for independent
contractors in their secondary job results in 24.8 million independent
contractors. According to Lim et al. (2019), in 2016 the average number
of 1099-MISC forms issued per independent contractor was 1.43.\192\
Therefore, the Department assumes the average independent contractor
has 1.43 jobs per year. This number does not account for the workers
who do not file taxes, a recognized limitation in the cited study.
Because it is unclear whether those who do not file taxes would have a
higher or lower number of jobs per year, the Department does not
believe that this limitation biases the estimate in either direction.
Multiplying these two numbers (1.43 jobs per year x 24.8 million
independent contractors) results in an estimated 35.5 million new
independent contractor relationships which would be assessed by the
Department's clearer analysis. A subset of new independent contractor
relationships may have time savings associated with the proposed rule
if finalized. Such a reduction would be difficult to quantify because
it is unclear how many establishments and independent contractors will
realize benefits of increased clarity. It is also possible that the
increased clarity of the classification process would lead to compound
effects that generate far greater benefits over time. Nonetheless,
because it is possible that only a subset of contracts would receive
the cost savings associated with increased clarity, the Department has
preliminarily reduced the number of contracts in the estimates by 25
percent. This would result in 26.6 million contracts with cost savings
to both the engaging firm and the independent
---------------------------------------------------------------------------

\192\ Lim et al., supra n.168, at 61.

---------------------------------------------------------------------------

[[Page 9966]]

contractor.\193\ The Department requests comment on: (a) how many of
the 35.5 million independent contractor relationships (or the 26.6
million subset or another subset that acknowledges that independent
contractor relationships in some states may still be assessed under
state laws notwithstanding the clearer analysis in this rulemaking)
undergo assessments per year, and (b) if these point-in-time estimates
overstate or possibly even understate the number of annual assessments,
how the savings per assessment should be adjusted from the preliminary
estimates to be discussed next.
---------------------------------------------------------------------------

\193\ As noted earlier, this might be an overestimate of the
effects of this rulemaking to the extent that some workers and
businesses in certain states might not be affected by this
rulemaking. See supra, n.164.
---------------------------------------------------------------------------

Following a similar methodology to the one used in the 2021 final
rule, the Department has assumed that employers would save 20 minutes
of time and independent contractors would save 10 minutes per each new
contract.\194\ These numbers are small because they represent the
marginal time savings for each contract, not the entire time necessary
to identify whether an independent contractor relationship holds.
---------------------------------------------------------------------------

\194\ These time savings are based on a 33 percent assumed
reduction in the estimated familiarization time per contract for
both independent contractors discussed above in section V.D.1.
(reduced from 30 minutes to 20 minutes) and employers (reduced from
1 hour to 40 minutes).
---------------------------------------------------------------------------

To estimate the cost savings due to the increased clarity that the
proposed rule would provide, the Department applies the following
estimates. For employers, this time is valued at a loaded hourly wage
rate of $64.97. This is the mean hourly rate of Compensation, Benefits
& Job Analysis Specialists (13-1141) from the OEWS multiplied by 1.63
to account for benefits and overhead. For independent contractors, this
time is valued at $24.12 per hour (median wage rate for independent
contractors in the CWS of $23.46 adjusted to present value using the
GDP deflator). Using these numbers, the Department estimates that
contracting firms would save $575.8 million annually and independent
contractors would save $106.9 million annually due to increased
clarity. In sum, this is estimated to be an undiscounted annualized
cost savings of $682.7 million. The Department assumes the parameters
used in this cost savings estimate would remain constant over time.
This assumes no growth in independent contracting, no real wage growth,
and no subsequent innovation in the employer-worker relationship. These
assumptions facilitate simplicity of calculation.

Table 2--Cost Savings for Increased Clarity to Employers and Independent
Contractors
------------------------------------------------------------------------
Parameter Value
------------------------------------------------------------------------
Number of new relationships (per year):
Independent Contractors.......................... 24,791,667
Number of jobs per contractor.................... 1.43
New independent contractor jobs to assess using 35,452,083
clearer analysis....................................
Adjustment factor................................ 75%
------------------
Total........................................ 26,589,063
Time savings per job (minutes):
Employers........................................ 20
Independent contractors.......................... 10
Value of time:
Employers........................................ $64.97
Independent contractors.............................. $24.12
Total Savings:
Employers........................................ $575,846,417
Independent contractors.......................... $106,869,807
------------------
Total........................................ $682,743,224
------------------------------------------------------------------------

2. Reduced Litigation
This proposal, if finalized, could result in decreased litigation
due to increased clarity and reduced misclassification. This proposal
would clarify to stakeholders how to distinguish between employees and
independent contractors. The increased clarity would result in fewer
independent contractor misclassification legal disputes, and lower
litigation costs. The Department welcomes feedback on how to quantify
the potential reduction in litigation due to increased clarity.
3. Increased Labor Force Entry
The Department anticipates that most benefits of this proposal
would arise from new labor force entry. A recent assessment of a 2019
California law (AB 5) that changed the standard for determining
independent contractor classification in a manner that restricted
independent contracting found that self-employment fell by 10.5 percent
in affected occupations and overall employment fell by 4.4 percent in
affected occupations.\195\ The Department believes this proposed rule
would have an effect in the opposite direction because it would be
viewed as less restrictive of independent contracting than the 2024
Rule. However, this labor force effect would be smaller in magnitude
because the change to California's independent contractor analysis
codified under AB 5 was more substantial than the change to the
Department's guidance regarding the analysis under federal wage and
hour law that could occur as a consequence of this rulemaking, which
would not change the underlying classification standard (i.e., the
economic reality test) and would primarily add clarity. Additionally,
this rulemaking would not likely impact some individuals operating in
states that have more stringent independent contractor tests, though
the exact offsetting impact of such state laws is difficult to
determine

[[Page 9967]]

because of significant variation in state laws' exemptions and
applications.\196\ Accordingly, the Department estimates that the
number of independent contractors could increase by 1 to 3 percent if
this proposal were finalized.
---------------------------------------------------------------------------

\195\ Palagashvili et al., supra n.161. The occupations affected
by the California law exclude the approximately 109 occupations for
which a statutory exemption from the ABC test exists. Id., Appendix
Table A1.
\196\ The FLSA does not preempt or ``excuse noncompliance with''
state laws that establish stricter standards based on the state's
own law and definitions. 29 U.S.C. 218(a). In states that use an ABC
test, there is significant variation in the number of occupations
and/or industries that are exempt from the test. Furthermore, some
states apply the test for purposes of unemployment insurance, for
example, but not wage and hour law.
---------------------------------------------------------------------------

As explained above, the Department assumes this increase results
from independent contractors entering the workforce. That assumption is
based on Palagashvili et al.'s finding that there was no statistically
significant evidence that AB 5 increased traditional employment--
suggesting that few independent contractors switched to traditional
employment--but that AB 5 did result in a statistically significant
decrease of independent contractors in the labor force.\197\ The
converse effect would be an increase in independent contractors in the
labor force without significant reclassification of employees to
independent contractors. The Department acknowledges that, due to data
limitations and complexities involving the interpretation of different
state labor laws, the Department might be overestimating or
underestimating the potential impact of this rulemaking on the number
of independent contractors and the overall labor force. Also,
Palagashvili et al. admit a lack of parallel trends for the pre-
treatment period--which raises questions about the reliability of their
difference-in-difference identification strategy. The Department
requests public comments and data on the potential labor force impact
of this rulemaking, including any alternative methods, inputs, or
assumptions.
---------------------------------------------------------------------------

\197\ Palagashvili et al., supra n.161. The impact of AB 5 on
affected occupations was estimated across four occupation subsamples
using data on the percentage of employed workers who were self-
employed by occupation: (1) Occupations in the lowest quartile of
prevalence of self-employment, (2) Occupations in the second
quartile of prevalence of self-employment, (3) Occupations in the
third quartile of prevalence of self-employment, and (4) Occupations
in the highest quartile of prevalence of self-employment.
---------------------------------------------------------------------------

Using the above estimate of 24.8 million independent contractors,
the Department's assumption results in between 248,000 and 744,000 (1
and 3 percent of all independent contractors respectively) new workers
entering independent contracting, with half being full-time and half
being part-time independent contractors.\198\ Using the above hourly
wage estimate of $24.12 for full-time independent contractor and
assuming that each works full-time (40 hours per week for 52 weeks per
year), the Department estimates that each new full-time worker would
have the opportunity to earn $50,170 per year. Using the median wage
estimate of $400 weekly for part-time independent contractors and
assuming they work year-round,\199\ the Department estimates that each
new part-time independent contractor would have the opportunity to earn
$20,800 per year. Earnings is an intermediate result toward the goal of
estimating worker surplus, which is a net value amount that accounts
for the opportunity cost of time and effort. Bartik (2015) \200\
estimates such net value to range from 8 to 32 percent of earnings.
Based on this finding, we assign a midpoint value of 20 percent to
total earnings to quantify the social benefit derived from increased
earnings. Assuming that the number of independent contractors increases
by the central estimate of 2 percent, if this proposal were finalized,
this results in estimated additional undiscounted total earnings of
approximately $87.79 billion. Applying the 20 percent estimate of
societal value to this finding yields a societal benefit attributable
to those additional earnings of $17.59 billion (for 248,000 new entries
evenly split between full-time and part-time workers) over 10 years or
an annualized increase of $1.76 billion at a 7 percent discount rate.
Moreover, a benefit accruing to broader society, in the form of taxes
collected on the additional earnings, is estimated as 17 percent of
those earnings, or $1.49 billion annually.\201\ The Department seeks
public comment and input on the likely magnitude of new labor force
entry, and the quantification of worker surplus and other societal
benefits under this proposal.
---------------------------------------------------------------------------

\198\ Based on the 2023 Contingent Worker Supplement (CWS), the
Department's estimate of an even distribution of full-time and part-
time works entering the labor force may underestimate the actual
distribution of full-time Independent Contractors and the potential
economic impact of new labor force participants. See Contingent and
Alternative Employment Arrangements--July 2023, supra n.165.
Additionally, as noted earlier, this might be an overestimate of the
effects of this rulemaking to the extent that some workers and
businesses in certain states might not be affected by this
rulemaking. See supra n.164.
\199\ Annual wage estimate for part-time Independent Contractors
is based on the 2023 CWS estimate for the median usual weekly
earnings of part-time workers ($400 per week x 52 weeks = $20,800).
See Contingent and Alternative Employment Arrangements--July 2023,
supra n.165.
\200\ Bartik, T., ``The Social Value of Job Loss and Its Effect
on the Costs of U.S. Environmental Regulations,'' Review of
Environmental Economics and Policy 9, no 2 (2015).
\201\ The source for the 17 percent input is https://aspe.hhs.gov/sites/default/files/documents/639756a60fbe7e51786bcec176ad52f1/Standard-RIA-Values-2025.pdf.
---------------------------------------------------------------------------

Along the same lines, a substantial body of evidence demonstrates
that workers derive significant benefit from flexible work
arrangements. Using administrative data on Uber drivers, Chen et al.
(2019) estimate that the ability to choose when to work yields more
than twice the surplus that drivers would obtain in less flexible
alternatives.\202\ The Department, however, is not proposing to
quantify the economic value of additional flexibility at this time
(except insofar as it is embedded in the worker surplus quantification
above).
---------------------------------------------------------------------------

\202\ Chen et al., supra n.159, at 2769.
---------------------------------------------------------------------------

4. Consumer Surplus
Qualitatively, expanded participation in independent contracting
also increases service availability in sectors such as ridesharing,
delivery, personal services, and creative/professional contracting.
Evidence from ride-hailing markets indicates that greater supply
reduces wait times and rationing, generating consumer surplus.\203\
While the Department does not attempt to quantify these gains in the
base case, such benefits are conceptually distinct from transfers and
may be material. The Department seeks public comment on evidence of
consumer surplus gains from expanded service availability that could
support quantification.
---------------------------------------------------------------------------

\203\ Juan Camilo Castillo et al., Matching and Pricing in Ride
Hailing: Wild Goose Chases and How to Solve Them (February 13,
2024), https://ssrn.com/abstract=2890666 or http://dx.doi.org/10.2139/ssrn.2890666.
---------------------------------------------------------------------------

5. Broader Labor Market Benefits
Additional benefits may arise from expanding labor force
participation among groups that highly value flexibility (e.g.,
caregivers, students, older workers); supporting continued labor market
attachment during periods when traditional employment is infeasible;
and enhancing efficiency by better aligning heterogeneous worker
preferences with available work arrangements. These effects are
difficult to quantify but represent genuine improvements in worker
welfare and economic efficiency.

F. Potential Transfer Effects

The substantive effect of the proposed rule is not intended to
favor independent contractor or employee classification relative to the
status quo. However, the Department assumes in this RIA that the
increased legal certainty associated with this proposed rule could lead
to an increase in the

[[Page 9968]]

number of independent contractor arrangements due to some degree of
reclassification. To be sure, as explained above, Palagashvili, et al.
did not find that AB 5 resulted in a significant increase in
traditional employment, suggesting that few independent contractors
switched to traditional employment as a result of California's
law.\204\ The implication is that reclassification due to this proposed
rule would likewise remain small, especially since the Department does
not propose changing the underlying legal standard and merely clarifies
the analysis. Nonetheless, the Department believes that some
reclassification may occur where workers are functionally in business
for themselves but are currently being classified as employees due to
legal uncertainty that the proposed rule dispels.
---------------------------------------------------------------------------

\204\ Palagashvili et al., supra n.161.
---------------------------------------------------------------------------

Potential transfers may result from differences in employer-
provided benefits, tax liabilities, and earnings between employees and
independent contractors. Although employer-provided benefits could
decrease, and tax liabilities could increase, independent contractors
also tend to receive higher gross earnings than employees to offset
tax, benefits, and other expenses, thus making much of the transfer
impact intrapersonal (in other words, an individual worker may receive
remuneration in a different form).\205\ Overall, the Department
believes the net impact on total compensation should be small in either
direction.
---------------------------------------------------------------------------

\205\ See generally Stephen Fishman, Working for Yourself: Law &
Taxes for Independent Contractors, Freelancers & Consultants (6th
ed. 2006). Scholarly literature relevant to substitution among forms
of remuneration includes: A. Mas and A. Pallais, ``Alternative Work
Arrangements,'' Annual Review of Economics 12, pp. 631-58 (2020);
S.J. Hong, J.M. Bauer, K. Lee and N.F. Granados, ``Drivers of
Supplier Participation in Ride-Hailing Platforms,'' Journal of
Management Information Systems 37(3), pp. 602-30 (2020); Hagiu and
J. Wright, ``The Status of Workers and Platforms in the Sharing
Economy,'' Journal of Economics & Management Strategy 28(1), pp. 97-
108 (2019); M.J. Bidwell and F. Briscoe, ``Who Contracts?
Determinants of the Decision to Work as an Independent Contractor
Among Information Technology Workers,'' Academy of Management
Journal 52(6), pp. 1148-68 (2009); R. Gibbons, ``Incentives in
Organizations,'' Journal of Economic Perspectives 12(4), pp. 115-32
(1998); B. Holmstrom and P. Milgrom, ``The Firm as an Incentive
System,'' American Economic Review 84(4), pp. 972-91 (1994).
---------------------------------------------------------------------------

To the extent that employers currently provide employees benefits
such as health insurance, retirement contributions, and paid time off,
these would likely decrease with an increase in the use of independent
contractors because independent contractors generally do not receive
these benefits directly (although independent contractors are able to
purchase at least some of these benefits for themselves).
As self-employed workers, independent contractors are legally
obligated to pay both the employee and employer shares of the Federal
Insurance Contributions Act (FICA) taxes. Thus, if workers'
classifications change from employees to independent contractors, there
may be a transfer in federal tax liabilities from employers to workers
(regardless of whether this affects the actual cost of these taxes to
the worker).
Furthermore, in order to attract qualified workers, companies must
offer competitive compensation whether they are employees or
independent contractors. Therefore, in a competitive labor market, any
reduction in benefits and increase in taxes is likely to be offset by
higher gross earnings. An Upjohn Institute study of CWS data from 1995
to 2017 finds that independent contractors and contract workers who
report being self-employed have weekly earnings of 3 percent and 8
percent more, on average, than wage and salary workers with the same
observable job characteristics.\206\ By contrast, some sources warn
employers that classifying a worker as an independent contractor can
cost between 25 and 40 percent more in hourly terms.\207\ The
Department believes this apparent gap reflects at least two dynamics:
within a firm, when comparing truly equivalent positions, shifting an
employee to independent contractor status is costly because the firm
must compensate for lost benefits, payroll taxes, and other expenses.
Across the broader economy, however, the Department assumes that the
pool of independent contractors skews towards lower-tenure workers who
perform qualitatively different tasks from employees, which can
compress the measured earnings premium in survey data to only a few
percentage points. Such differences in specific job tasks may not be
observable in CWS data upon which the Upjohn study relied. The
Department invites comments on how best to reconcile these figures.
---------------------------------------------------------------------------

\206\ See Katharine G. Abraham & Susan N. Houseman, Contingent
and Alternative Employment: Lessons From the Contingent Worker
Supplement, 1995-2017, W.E. Upjohn Inst. (2020), https://research.upjohn.org/cgi/viewcontent.cgi?article=1274&context=reports.
\207\ See Barbara Weltman, How Much Does an Employee Cost You?,
U.S. Small Business Administration (2019), https://www.sba.gov/blog/how-much-does-employee-cost-you.
---------------------------------------------------------------------------

The Department invites further comments on its assumption that use
of independent contractors will increase if the proposed rule is
finalized. The Department also welcomes comments and data from
companies looking to increase their use of independent contractors,
specifically on whether their classifications of workers as employees
would change to independent contractor status, consistent with this
proposed rule and their other contractual and legal obligations, or
whether they would instead hire new workers as independent contractors.

G. Alternatives Considered

The Department considered three alternatives to the proposed rule,
listed below from least to most restrictive of independent contracting:
\208\
---------------------------------------------------------------------------

\208\ OMB guidance advises that, where possible, agencies should
analyze at least one ``more stringent option'' and one ``less
stringent option'' to the proposed approach. OMB Circular A-4 at 16.
---------------------------------------------------------------------------

(1) adoption of the common law control test, which applies in
distinguishing between employees and independent contractors under
various other federal laws;
(2) adoption of WHD's current enforcement policy, which is
comprised of sub-regulatory guidance and provides a multifactor
``economic reality'' balancing test; and
(3) adoption of an ``ABC'' test (which a number of states have
adopted).
The Department previously considered and rejected the first and
third alternatives--i.e., a common law control test or an ABC test--on
legal viability grounds in the 2021 Rule and 2024 Rule.\209\ The
Department continues to believe that legal limitations prevent the
Department from adopting either of those alternatives, but has included
them in this analysis to the extent that an analysis might be helpful
in providing greater context on the merits of legislative proposals in
Congress.\210\
---------------------------------------------------------------------------

\209\ See 86 FR 1238-43; 89 FR 1660-63.
\210\ OMB Circular A-4 advises that agencies should ``discuss
the statutory requirements that affect the selection of regulatory
approach. If legal constraints prevent the selection of a regulatory
action that best satisfies the philosophy and principles of
Executive Order 12866, [agencies] should identify these constraints
and estimate their opportunity cost. Such information may be useful
to Congress under the Regulatory Right-to-Know Act.''
---------------------------------------------------------------------------

1. Adopting a Common Law Control Test
The least restrictive (of independent contracting) alternative
considered to the proposed rule's streamlined ``economic reality'' test
would be to adopt a common law control test, as is generally used to
determine employee or independent contractor classification questions
arising under the Internal Revenue Code and various other federal

[[Page 9969]]

laws.\211\ The overarching focus of the common law control test is
``the hiring party's right to control the manner and means by which
[work] is accomplished,'' Reid, 490 U.S. at 751, but the Supreme Court
has explained that ``other factors relevant to the inquiry [include]
the skill required; the source of the instrumentalities and tools; the
location of the work; the duration of the relationship between the
parties; whether the hiring party has the right to assign additional
projects to the hired party; the extent of the hired party's discretion
over when and how long to work; the method of payment; the hired
party's role in hiring and paying assistants; whether the work is part
of the regular business of the hiring party; whether the hiring party
is in business; the provision of employee benefits; and the tax
treatment of the hired party.'' Id. at 751-52 (footnotes omitted).
---------------------------------------------------------------------------

\211\ See 26 U.S.C. 3121(d)(2) (generally defining the term
``employee'' under the Internal Revenue Code as ``any individual
who, under the usual common law rules applicable in determining the
employer-employee relationship, has the status of an employee''); 42
U.S.C. 410(j)(2) (similarly defining ``employee'' under the Social
Security Act). The Supreme Court has explained that the common law
standard of employment applies by default under Federal law ``unless
[Congress] clearly indicates otherwise.'' Darden, 503 U.S. at 325
(holding that ``a common-law test'' should resolve employee/
independent contractor disputes under Employee Retirement Income
Security Act); see also Reid, 490 U.S. at 739-40, 751 (explaining
that ``when Congress has used the term `employee' without defining
it, we have concluded that Congress intended to describe the
conventional master-servant relationship as understood by common-law
agency doctrine'' and applying ``principles of general common law of
agency'' to determine ``whether . . . work was prepared by an
employee or an independent contractor'' under the Copyright Act of
1976).
---------------------------------------------------------------------------

Although the common law control test considers many of the same
factors as those identified in the proposed rule's ``economic reality''
test (e.g., skill, duration of the working relationship, investments in
equipment and hiring helpers, etc.), courts generally recognize that,
because of its focus on control, the common law test is more permissive
of independent contracting arrangements than the economic reality test,
which more broadly examines the economic dependence of the worker. See,
e.g., Diggs v. Harris Hospital-Methodist, Inc., 847 F.2d 270, 272 n.1
(5th Cir. 1988) (observing that ``[t]he `economic realities' test is a
more expansive standard for determining employee status'' than the
common law control test). Thus, if a common law control test determined
independent contractor status under the FLSA, it is possible that some
workers presently classified as employees could be reclassified as
independent contractors, increasing the overall number of independent
contractors and reducing the overall number of employees. The
Department is unable to estimate the exact magnitude of such a
reclassification effect, but believes that the vast majority of FLSA
employees would remain FLSA employees under a common law control test.
Adopting a common law control test would create a simpler legal
regime for regulated entities interested in receiving services from an
independent contractor, thereby reducing confusion, compliance costs,
and legal risk for entities interested in doing business with
independent contractors. Entities would not, for example, have to
understand and apply one employment classification analysis for tax
purposes and a different employment classification analysis for FLSA
purposes. Thus, adopting the common law control test would likely
increase perpetual cost savings for regulated entities attributable to
improved clarity and reduced litigation as compared to the proposed
rule. It could, on the other hand, impose burdens on workers who might
prefer to be employees subject to FLSA protections.
The Department notes that the Supreme Court has interpreted the
``suffer or permit'' language in section 3(g) of the FLSA as demanding
a broader definition of employment than that which exists under the
common law. See, e.g., Darden, 503 U.S. at 326; Portland Terminal Co.,
330 U.S. at 150-51. Accordingly, the Department believes it is legally
constrained from adopting the common law control test unless the
Supreme Court revisits its precedent or if Congress passes legislation
that alters the applicable analysis under the FLSA.
2. Adopting WHD's Current Enforcement Policy
On May 1, 2025, WHD issued Field Assistance Bulletin (FAB) No.
2025-1,\212\ directing WHD field staff to no longer apply the analysis
from the 2024 Rule when determining employee or independent contractor
status in FLSA investigations. Instead, FAB 2025-1 instructs WHD field
staff to use the analysis from the July 2008 version of Fact Sheet #13,
as further informed by Opinion Letter FLSA2025-2, in WHD enforcement
matters. This is WHD's current enforcement policy regarding FLSA
independent contractor or employee status. Opinion Letter FLSA2025-2
applies a six-factor economic reality analysis derived from the July
2008 version of Fact Sheet #13 that focuses on how the factors relate
to the worker's economic dependence or independence and emphasizes the
degree to which the worker could choose between work opportunities,
work for others including competitors, and pursue external economic
opportunities.
---------------------------------------------------------------------------

\212\ https://www.dol.gov/sites/dolgov/files/WHD/fab/fab2025-1.pdf.
---------------------------------------------------------------------------

The Department believes that this multifactor balancing test that
WHD is currently applying per FAB 2025-1 is neither materially more nor
less permissive of independent contractor relationships as compared to
the streamlined, core factors analysis set forth in the 2021 Rule,\213\
which the Department is proposing to readopt. Both tests describe the
``economic dependence'' of the worker at issue as the essential inquiry
of the test; both emphasize the importance of actual practice over
contractual or theoretical possibilities (i.e., the ``economic
reality'' of the work arrangement); and both evaluate the same set of
underlying factors, notwithstanding an emphasis and consolidation of
certain factors under the streamlined test.
---------------------------------------------------------------------------

\213\ See 86 FR 1240 (explaining that the Department's pre-2021
guidance was ``neither more nor less permissive of independent
contractor relationships as compared to'' the 2021 Rule).
---------------------------------------------------------------------------

While Opinion Letter FLSA2025-2, for example, sought to refine each
factor in a focused way, it did not expressly recognize any ``core''
factors and instead stated that ``the appropriate weight to give to
each factor depends on the facts.'' \214\ Although it provides some
additional instruction, WHD's current enforcement policy lacks specific
guidance on how to weigh the factors when applying the multi-factor
economic reality analysis and leaves stakeholders without clearer
guidance to determine independent contractor or employee status under
the FLSA, especially in today's modern economy. For these reasons, the
Department is not proposing to adopt its current enforcement policy on
independent contractor or employee status.
---------------------------------------------------------------------------

\214\ See WHD Op. Ltr. FLSA2025-2 at 5.
---------------------------------------------------------------------------

3. Adopting an ``ABC'' Test
The third and most restrictive (of independent contracting)
regulatory alternative considered to the Department's proposed rule
would be to adopt an ``ABC'' test like the ones enacted in a number of
states to distinguish between employee and

[[Page 9970]]

independent contractor status.\215\ Generally, an ABC test presumes an
individual is an employee unless the potential employer can satisfy all
three requirements in order to classify the individual as an
independent contractor. The three requirements of an ABC test typically
are: (A) the individual is free from the potential employer's control
or direction in performing his work, both under a contract for the
performance of such work and in fact; (B) the work performed by the
individual is outside the usual course of the potential employer's
business; and (C) the individual is customarily engaged in an
independently established trade, occupation, or business of the same
nature as the work performed for the potential employer.\216\
---------------------------------------------------------------------------

\215\ See e.g., Cal. Lab. Code sec. 2775(b)(1)(A)-(C) (2025);
Mass. Gen. Laws ch. 149, sec. 148B(a)(1)-(3) (2025); N.J. Stat.
43:21-19(i)(6)(A)-(C) (2025); Vt. Stat. Ann. Tit. 21, sec. 341(1)
(2025); see also Keith Cunningham-Parmeter, Gig-Dependence: Finding
the Real Independent Contractors of Platform Work, 39 N. Ill. U. L.
Rev. 379, 408-11 (2019) (discussing the origins and expansion of the
ABC test).
\216\ Jon O. Shimabukuro, Cong. Rsch. Serv., R46765, Worker
Classification: Employee Status Under the National Labor Relations
Act, the Fair Labor Standards Act, and the ABC Test (2021).
---------------------------------------------------------------------------

On its face, an ABC test is more restrictive of independent
contracting arrangements than any formulation of an ``economic
reality'' test, including the proposed rule. Whereas no single factor
necessarily disqualifies a worker from independent contractor status
under an economic reality test, each of an ABC test's three factors may
alone disqualify the worker from independent contractor status. The
Department believes adopting an ABC test as the FLSA's generally
applicable analysis for distinguishing employees from independent
contractors would be too restrictive.
In any event, the Department believes it is legally constrained
from adopting an ABC test because the Supreme Court has instituted the
economic reality test as the relevant standard for determining workers'
classification under the FLSA as an employee or independent contractor.
See Tony & Susan Alamo, 471 U.S. at 301 (``The test of employment under
the Act is one of `economic reality.' ''); Whitaker House, 366 U.S. at
33 (holding that `` `economic reality' rather than `technical concepts'
is . . . the test of employment'' under the FLSA) (citing Silk, 331
U.S. at 713; Rutherford Food, 331 U.S. at 729)).
Moreover, the Supreme Court has stated that the existence of
employment relationships under the FLSA ``does not depend on such
isolated factors'' as the three independently determinative factors in
an ABC test would constitute, ``but rather upon the circumstances of
the whole activity.'' Rutherford Food, 331 U.S. at 730. Because an ABC
test is therefore inconsistent with Supreme Court precedent
interpreting the FLSA, the Department concludes it could not adopt an
ABC test unless the Supreme Court revisits its precedent or if Congress
passes legislation that alters the applicable analysis under the FLSA.

VI. Initial Regulatory Flexibility Act Analysis (IRFA)

The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq.,
as amended by the Small Business Regulatory Enforcement Fairness Act of
1996, Public Law 104-121 (March 29, 1996), requires Federal agencies
engaged in rulemaking to consider the impact of their rules on small
entities, consider alternatives to minimize that impact, and solicit
public comment on their analyses. The RFA requires the assessment of
the impact of a regulation on a wide range of small entities, including
small businesses, not-for profit organizations, and small governmental
jurisdictions. Agencies must perform a review to determine whether a
proposed or final rule would have a significant economic impact on a
substantial number of small entities. Accordingly, the Department
examined the regulatory requirements of this NPRM, if finalized, to
determine whether they would have a significant economic impact on a
substantial number of small entities.
The Department believes that rescinding the 2024 Rule and replacing
it with regulations that provide greater clarity and predictable
outcomes would be helpful for both workers and employers. The
Department believes this NPRM, if finalized, would likely improve the
welfare of both workers and businesses on the whole, including those
who wish to work as independent contractors.

A. Reasons Why Action by the Agency Is Being Considered and Statement
of Objectives and Legal Basis for the Proposed Rule

As explained more fully in section II of this notice, the
Department is concerned that the 2024 Rule fails to provide an analysis
for distinguishing between independent contractors and employees under
the FLSA that is sufficiently clear and leads to predictable outcomes.
The Department is separately concerned that the 2024 Rule's description
of several economic reality factors could be viewed as setting a higher
bar to find independent contractor status than the law requires. Among
other harms, an analysis which is ambiguous or perceived as too
restrictive of independent contracting can deter businesses from
engaging with bona fide independent contractors or induce them to
unnecessarily classify such individuals as employees--concerns
emphasized by many self-identified independent contractors who have
participated in the Department's recent rulemakings on this topic.
Accordingly, in this rulemaking, the Department is proposing to
rescind the 2024 Rule and largely readopt the 2021 Rule,\217\ which the
Department has successfully applied in WHD investigations.\218\
Additionally, the Department is proposing to revise the regulations
addressing employee or independent contractor status under MSPA and the
FMLA so that the analysis in part 795 applies when determining employee
or independent contractor status under those statutes too.
---------------------------------------------------------------------------

\217\ As explained in section III, the Department proposes to
readopt the 2021 Rule's FLSA guidance with a substantive edit to
proposed Sec. 795.105(b), one non-substantive edit to proposed
Sec. 795.105(d)(2)(iii), and a few small modifications to the
illustrative examples in proposed Sec. 795.115.
\218\ See supra, n. 81.
---------------------------------------------------------------------------

The Department's authority to interpret the FLSA comes with its
authority to administer and enforce it. See 29 U.S.C. 204; Herman v.
Fabri-Centers of Am., Inc., 308 F.3d 580, 592-93 & n.8 (6th Cir. 2002)
(noting that ``[t]he Wage and Hour Division of the Department of Labor
was created to administer the Act'' while agreeing with the
Department's interpretation of one of the FLSA's provisions); Dufrene
v. Browning-Ferris, Inc., 207 F.3d 264, 267 (5th Cir. 2000) (``By
granting the Secretary of Labor the power to administer the FLSA,
Congress implicitly granted him the power to interpret.''); Condo v.
Sysco Corp., 1 F.3d 599, 603 (7th Cir. 1993) (same). The Department's
authority to interpret the FMLA and MSPA is expressly delegated by
statute. 29 U.S.C. 2654 (FMLA); 29 U.S.C. 1861 (MSPA).

B. Description of the Number of Small Entities Potentially Affected by
the Proposed Rule

The Department used the Small Business Administration size
standards, which determine whether a business qualifies for small-
business status, to estimate the number of small entities.\219\ The
Department then applied these thresholds to the U.S. Census Bureau's
2022 Economic Census to obtain the

[[Page 9971]]

number of establishments with employment or sales/receipts below the
small business threshold in the industry.^{220 221} Next, the
Department estimated the number of small governments, defined as having
population less than 50,000, from the 2022 Census of Governments.\222\
In total, the Department estimated there are 6.4 million small
establishments or governments.
---------------------------------------------------------------------------

\219\ SBA, Summary of Size Standards by Industry Sector, 2022,
https://www.sba.gov/document/support-table-size-standards.
\220\ The 2022 data are the most recently available with revenue
data.
\221\ For this analysis, the Department excluded independent
contractors who are not registered as small businesses, and who are
generally not captured in the Economic Census, from the calculation
of small establishments.
\222\ U.S. Census Bureau, 2022 Census of Governments, https://www.census.gov/data/tables/2022/econ/gus/2022-governments.html.
---------------------------------------------------------------------------

C. Projected Reporting, Recordkeeping, and Other Compliance
Requirements of the Proposed Rule

As explained more fully in section V.D. of this NPRM, the only
direct costs to affected entities would be rule familiarization costs.
This proposed rule lays out the framework for assessing employee or
independent contractor status under the FLSA. It does not create any
new reporting or recordkeeping requirements for businesses.
The Department assumes that a Compensation, Benefits, and Job
Analysis Specialist (SOC 13-1141) (or a staff member in a similar
position) would review any final rule.\223\ According to the OEWS,
these workers had a mean wage of $39.86 per hour. Given the proposed
clarification to the Department's interpretation of who is an employee
and who is an independent contractor, the Department assumes that it
would take on average about 1 hour to review the rule if adopted as
proposed. The Department believes that an hour, on average, is
appropriate, because while some establishments would spend longer than
one hour to review a rule, many establishments may rely on third-party
summaries of the changes or spend little or no time reviewing the rule.
Assuming benefits are paid at a rate of 46 percent of the base wage,
and overhead costs are 17 percent of the base wage, the reviewer's
effective hourly rate is $64.97; thus, the average cost per
establishment conducting regulatory familiarization would be $64.97.
The per-entity rule familiarization cost for independent contractors,
some of whom would be small businesses, would be $12.06, median hourly
wage of independent contractors in the CWS ($24.12) multiplied by 0.5
hour. The Department believes that 30 minutes, on average, is
appropriate, because while some independent contractors would spend
longer than 30 minutes to review a rule, many will spend little or no
time reviewing it.
---------------------------------------------------------------------------

\223\ A Compensation/Benefits Specialist ensures company
compliance with Federal and state laws, including reporting
requirements; evaluates job positions, determining classification,
exempt or non-exempt status, and salary; plans, develops, evaluates,
improves, and communicates methods and techniques for selecting,
promoting, compensating, evaluating, and training workers. See BLS,
BLS, Occupational Employment and Wage Statistics Query System,
https://data.bls.gov/oes/#/industry/000000 (last updated May 2024).
---------------------------------------------------------------------------

As discussed above in section V.D.3, the Department calculated cost
savings for 8.3 million establishments that will experience cost
savings due to increased clarity from the proposed rule. Among those
establishments, 6.37 million were identified as small businesses with
under 500 employees.\224\ Annual payroll estimates for these small
business establishments totaled $3,465 million which is approximately
39 percent of total payroll across all businesses regardless of
size.\225\ The Department applied this figure to the total cost savings
for all employers to derive an estimated 10-year cost savings of $2,225
million for small business employers (0.39 x $5,758 million). This
yields $373.59 in cost savings per small employer at a 7 percent
discount rate, and an annualized cost savings of $37.24 per employer at
a 7 percent discount rate. The undiscounted cost savings due to
increased clarity for each independent contractor, some of whom would
be a small business, is $4.31. The Department calculated this cost
savings by dividing the total annualized cost savings for independent
contractors ($106,869,807) by the number of independent contractors
(24,791,667). Over a 10-year period the cost savings per independent
contractor is $46.14 at a 7 percent discount rate, or $4.61 annualized
at a 7 percent discount rate. Based on this evaluation, presented below
in table 3, the Department estimates that the total 10-year cost
savings for small business employers and independent contractors is
$3,525 million at a 7 percent discount rate, or $352.52 million
annualized at a 7 percent discount rate.
---------------------------------------------------------------------------

\224\ See SUSB, supra n.184.
\225\ 2022 SUSB total payroll across all establishments is
$8,965,035,263. Across establishments with fewer than 500 employees
the total payroll was $3,465,049,519 [8,965,035,263 x 0.3865 =
$3,465,049,519].

----------------------------------------------------------------------------------------------------------------
Total cost
Type of entity savings with 7% Per entity Annualized with Per entity
discount 7% discount
----------------------------------------------------------------------------------------------------------------
Sm. Employers............................. $2,381,485,217 $373.59 $238,148,522 $37.24
Contractors............................... 1,143,795,834 46.14 114,379,583 4.61
Combined.................................. 3,525,281,050 .............. 352,528,10 ..............
----------------------------------------------------------------------------------------------------------------

Because regulatory familiarization is a one-time cost and the cost
savings from clarity recur each year, the Department expects cost
savings to outweigh regulatory familiarization costs in the long run.
Because both costs and cost savings are minimal for small business
entities, and well below one percent of their gross annual revenues,
which is typically at least $100,000 per year for the smallest
businesses, the Department expects that this proposal, if finalized,
would not have a significant economic impact on a substantial number of
small entities.
Potential transfers may be attributed to the reclassification from
employee to independent contractor due to reduced payroll taxes and
benefit costs while workers assume increased tax liabilities and the
loss of employer-provided benefits. The Department believes that these
transfers are largely offsetting since workers are expected to receive
higher gross earnings that compensate for the lost benefits and
increased taxes. Small firms may benefit disproportionately since they
use independent contractors more than large firms.\226\ Additional
transfers occur between competing small businesses, where independent
contractor model firms gain advantages over traditional employers, and
their service providers. Market imperfections may generate deadweight
losses through incomplete wage compensation, higher costs for
individually-purchased benefits, and increased tax compliance burdens.
Because the overall, net impact on worker compensation is expected to
be small, the Department does not expect

[[Page 9972]]

that the proposed rule should create undue hardship for small
businesses since benefits and cost savings outweigh costs.
---------------------------------------------------------------------------

\226\ Lim et al., supra n.168, at 51.
---------------------------------------------------------------------------

D. Relevant Federal Rules Duplicating, Overlapping, or Conflicting With
the Proposed Rule

The Department is unaware of any Federal rules which duplicate,
overlap, or conflict with the proposed rule.

E. Discussion of Regulatory Alternatives

The RFA requires agencies to discuss ``any significant alternatives
to the proposed rule which accomplish the stated objectives of
applicable statutes and which minimize any significant economic impact
of the proposed rule on small entities.'' \227\ As discussed earlier in
section V.G., the Department does not believe that it has the legal
authority to adopt either a common law or ``ABC'' test to determine
employee or independent contractor status under the FLSA, foreclosing
the consideration of these alternatives for purposes of the RFA.
---------------------------------------------------------------------------

\227\ 5 U.S.C. 603(c).
---------------------------------------------------------------------------

The Department also considered adopting WHD's current enforcement
policy as a regulatory alternative. As noted in section V.G.2., since
May 1, 2025, WHD has been applying the analysis from the July 2008
version of Fact Sheet #13, as further informed by Opinion Letter
FLSA2025-2, in its enforcement matters.\228\ The Department believes
that this multifactor balancing test that WHD is currently applying per
FAB 2025-1 is neither materially more nor less permissive of
independent contractor relationships as compared to the streamlined,
core factors analysis set forth in the 2021 Rule,\229\ which the
Department is proposing to readopt. However, WHD's current enforcement
policy lacks specific guidance on how to weigh the factors when
applying the multi-factor economic reality analysis and leaves
stakeholders without clearer guidance to determine independent
contractor or employee status under the FLSA, especially in today's
modern economy.\230\ For these reasons, the Department is not proposing
to adopt its current enforcement policy on independent contractor or
employee status.
---------------------------------------------------------------------------

\228\ See FAB No. 2025-1 (May 1, 2025).
\229\ See 86 FR 1240.
\230\ See WHD Op. Ltr. FLSA2025-2 at 5 (advising that ``the
appropriate weight to give to each factor depends on the facts'').
---------------------------------------------------------------------------

In addition to the alternatives discussed above, section 603(c) of
the RFA describes four categories of regulatory alternatives that might
be appropriate for consideration in an IRFA analysis. The Department
does not believe that the FLSA is best interpreted to encompass these
categories of regulatory alternatives or that they are necessarily
applicable to this proposal.
1. Differing Compliance or Reporting Requirements That Take Into
Account the Resources Available to Small Entities
Nothing in the FLSA or the decades of court decisions interpreting
it suggest that a worker's status as an employee or independent
contractor should turn on the size of the entity that benefits from
their labor. As described earlier, one of the primary goals of the FLSA
is to curtail ``unfair method[s] of competition in commerce'' by
establishing minimum labor standards that all covered employers must
observe.\231\ Providing differing compliance or reporting requirements
for small businesses would undermine this important purpose of the
FLSA. The Department makes available a variety of resources to
employers for understanding their obligations and achieving compliance
and, if this proposed rule is finalized, will prepare a small entity
compliance guide, as required by the Small Business Regulatory
Enforcement Fairness Act (SBREFA).\232\ Therefore, the Department has
not proposed differing compliance or reporting requirements for small
businesses.
---------------------------------------------------------------------------

\231\ 29 U.S.C. 202(a)(3).
\232\ Small Business Regulatory Enforcement Fairness Act, Public
Law 104-121 sec. 212.
---------------------------------------------------------------------------

2. The Clarification, Consolidation, or Simplification of Compliance
and Reporting Requirements for Small Entities
This proposed rule does not impose any new reporting requirements,
and the Department makes available a variety of resources to employers
for understanding their obligations and achieving compliance.
3. The Use of Performance Rather Than Design Standards
This proposed rule provides guidance regarding the factors that
should be considered regarding a worker's employment status under the
FLSA, FMLA, and MSPA, consistent with Supreme Court precedent
interpreting statutory language which is common to all three laws. It
is unclear whether any performance standards could appropriately
determine a worker's status as an employee or independent contractor,
and such an approach is foreclosed in any event by judicial precedent.
4. An Exemption From Coverage of the Rule, or Any Part Thereof, for
Such Small Entities
Creating an exemption from coverage of this proposed rule for
businesses with as many as 500 employees, those defined as small
businesses under SBA's size standards, would be inconsistent with the
FLSA, which applies to all employers that satisfy the enterprise
coverage threshold or employ individually covered employees, regardless
of the employer's number of employees. Further, as described above,
case law interpreting the distinction between employees and independent
contractors under the FLSA does not support such an exemption.
The Department welcomes comments on this IRFA's analysis of
regulatory alternatives.

F. Unfunded Mandates Reform Act of 1995

The Unfunded Mandates Reform Act of 1995 (UMRA) requires that
agencies assess anticipated costs and benefits before issuing any rule
that would impose spending costs on State, local, or tribal governments
in the aggregate, or on the private sector, in any 1 year of $100
million in 1995 dollars, updated annually for inflation. That threshold
is currently approximately $206 million. This rulemaking will not
result in the expenditure by State, local, or tribal governments, in
the aggregate, or by the private sector, in excess of the threshold.
Thus, no written assessment of unfunded mandates is required.

G. Federalism

This rule will not have substantial direct effects on the States,
on the relationship between the National Government and the States, or
on distribution of power and responsibilities among the various levels
of government. Therefore, in accordance with Executive Order 13132, it
is determined that this rule does not have sufficient federalism
implications to warrant preparation of a Federalism Assessment.

List of Subjects

29 CFR Part 500

Administrative practice and procedure, Aliens, Employment, Housing,
Insurance, Intergovernmental relations, Investigations, Licensing and
registration, Migrant labor, Motor vehicle safety, Occupational safety
and health, Penalties, Reporting and recordkeeping requirements, Wages,
Whistleblowing.

[[Page 9973]]

29 CFR Part 795

Employment, Wages.

29 CFR Part 825

Administrative practice and procedure, Airmen, Employee benefit
plans, Health, Health insurance, Labor management relations, Maternal
and child health, Penalties, Pensions, Reporting and recordkeeping
requirements, Teachers.

For the reasons set out in the preamble, the Department of Labor is
proposing to amend 29 CFR parts 500, 795, and 825 as follows:

PART 500--MIGRANT AND SEASONAL AGRICULTURAL WORKER PROTECTION

0
1. The authority citation for part 500 continues to read as follows:

Authority: Pub. L. 97-470, 96 Stat. 2583 (29 U.S.C. 1801-1872);
Secretary's Order No. 01-2014 (Dec. 19, 2014), 79 FR 77527 (Dec. 24,
2014); 28 U.S.C. 2461 Note (Federal Civil Penalties Inflation
Adjustment Act of 1990); and Pub. L. 114-74, 129 Stat 584.

0
2. Amend Sec. 500.20 by revising paragraph (h)(4) to read as follows:
(4) The definition of the term employ may include consideration of
whether or not an independent contractor or employment relationship
exists under the Fair Labor Standards Act. Under MSPA, questions will
arise whether or not a farm labor contractor engaged by an agricultural
employer/association is a bona fide independent contractor or an
employee. Questions also arise whether or not the worker is a bona fide
independent contractor or an employee of the farm labor contractor and/
or the agricultural employer/association. These questions should be
resolved in accordance with the criteria set forth in Sec. Sec.
795.105 through 795.110 of this chapter. If it is determined that the
farm labor contractor is an employee of the agricultural employer/
association, the agricultural workers in the farm labor contractor's
crew who perform work for the agricultural employer/association are
deemed to be employees of the agricultural employer/association and an
inquiry into joint employment is not necessary or appropriate. In
determining if the farm labor contractor or worker is an employee or an
independent contractor, the ultimate question is the economic reality
of the relationship--whether there is economic dependence upon the
agricultural employer/association or farm labor contractor, as
appropriate.

PART 795--EMPLOYEE OR INDEPENDENT CONTRACTOR CLASSIFICATION UNDER
THE FAIR LABOR STANDARDS ACT

0
3. The authority citation for part 795 continues to read as follows:

Authority: 52 Stat. 1060, as amended; 29 U.S.C. 201-219.

0
4. Revise part 795 to read as follows:

Sec. 795.100 Introductory statement.

This part contains the Department of Labor's general
interpretations of the text governing individuals' classification as
employees or independent contractors under the Fair Labor Standards Act
(FLSA or Act). See 29 U.S.C. 201-19. The Administrator of the Wage and
Hour Division will use these interpretations to guide the performance
of his or her duties under the Act, and intends the interpretations to
be used by employers, employees, and courts to understand employers'
obligations and employees' rights under the Act. To the extent that
prior administrative rulings, interpretations, practices, or
enforcement policies relating to classification as an employee or
independent contractor under the Act are inconsistent or in conflict
with the interpretations stated in this part, they are hereby
rescinded. The interpretations stated in this part may be relied upon
in accordance with section 10 of the Portal-to-Portal Act, 29 U.S.C.
251-262, notwithstanding that after any such act or omission in the
course of such reliance, any such interpretation in this part ``is
modified or rescinded or is determined by judicial authority to be
invalid or of no legal effect.'' 29 U.S.C. 259.

Sec. 795.105 Determining employee and independent contractor
classification under the FLSA.

(a) Independent contractors are not employees under the Act. An
individual who renders services to a potential employer--i.e., a
putative employer or alleged employer--as an independent contractor is
not that potential employer's employee under the Act. As such, sections
6, 7, and 11 of the Act, which impose obligations on employers
regarding their employees, are inapplicable. Accordingly, the Act does
not require a potential employer to pay an independent contractor
either the minimum wage or overtime pay under sections 6 or 7. Nor does
section 11 of the Act require a potential employer to keep records
regarding an independent contractor's activities.
(b) Economic dependence as the ultimate inquiry. An ``employee''
under the Act is an individual whom an employer suffers, permits, or
otherwise employs to work. 29 U.S.C. 203(e)(1), (g). An employer
suffers or permits an individual to work as an employee if, as a matter
of economic reality, the individual is economically dependent on that
employer for work. Rutherford Food Corp. v. McComb, 331 U.S. 722, 727
(1947); Bartels v. Birmingham, 332 U.S. 126, 130 (1947). An individual
is an independent contractor, as distinguished from an ``employee''
under the Act, if the individual is, as a matter of economic reality,
in business for him- or herself. Though both employees and independent
contractors are dependent on others in some sense, economic dependence
in this context means the dependence that a typical employee has on an
employer for work, as opposed to an individual who has more of the
nature and character of a business owner who has a separate business.
Economic dependence does not focus on the amount of income the worker
earns, or whether the worker has other sources of income.
(c) Determining economic dependence. The economic reality factors
in paragraph (d) of this section guide the determination of whether the
relationship between an individual and a potential employer is one of
economic dependence and therefore whether an individual is properly
classified as an employee or independent contractor. These factors are
not exhaustive, and no single factor is dispositive. However, the two
core factors listed in paragraph (d)(1) of this section are the most
probative as to whether or not an individual is an economically
dependent ``employee,'' 29 U.S.C. 203(e)(1), and each therefore
typically carries greater weight in the analysis than any other factor.
Given these two core factors' greater probative value, if they both
point towards the same classification, whether employee or independent
contractor, there is a substantial likelihood that is the individual's
accurate classification. This is because other factors are less
probative and, in some cases, may not be probative at all, and thus are
highly unlikely, either individually or collectively, to outweigh the
combined probative value of the two core factors.
(d) Economic reality factors--(1) Core factors--(i) The nature and
degree of control over the work. This factor weighs towards the
individual being an independent contractor to the extent the
individual, as opposed to the potential employer, exercises substantial
control over key aspects of the performance of the work, such as by
setting his or her own schedule, by selecting his or her projects, and/
or through the ability to

[[Page 9974]]

work for others, which might include the potential employer's
competitors. In contrast, this factor weighs in favor of the individual
being an employee under the Act to the extent the potential employer,
as opposed to the individual, exercises substantial control over key
aspects of the performance of the work, such as by controlling the
individual's schedule or workload and/or by directly or indirectly
requiring the individual to work exclusively for the potential
employer. Requiring the individual to comply with specific legal
obligations, satisfy health and safety standards, carry insurance, meet
contractually agreed-upon deadlines or quality control standards, or
satisfy other similar terms that are typical of contractual
relationships between businesses (as opposed to employment
relationships) does not constitute control that makes the individual
more or less likely to be an employee under the Act.
(ii) The individual's opportunity for profit or loss. This factor
weighs towards the individual being an independent contractor to the
extent the individual has an opportunity to earn profits or incur
losses based on his or her exercise of initiative (such as managerial
skill or business acumen or judgment) or management of his or her
investment in or capital expenditure on, for example, helpers or
equipment or material to further his or her work. While the effects of
the individual's exercise of initiative and management of investment
are both considered under this factor, the individual does not need to
have an opportunity for profit or loss based on both for this factor to
weigh towards the individual being an independent contractor. This
factor weighs towards the individual being an employee to the extent
the individual is unable to affect his or her earnings or is only able
to do so by working more hours or faster.
(2) Other factors--(i) The amount of skill required for the work.
This factor weighs in favor of the individual being an independent
contractor to the extent the work at issue requires specialized
training or skill that the potential employer does not provide. This
factor weighs in favor of the individual being an employee to the
extent the work at issue requires no specialized training or skill and/
or the individual is dependent upon the potential employer to equip him
or her with any skills or training necessary to perform the job.
(ii) The degree of permanence of the working relationship between
the individual and the potential employer. This factor weighs in favor
of the individual being an independent contractor to the extent the
work relationship is by design definite in duration or sporadic, which
may include regularly occurring fixed periods of work, although the
seasonal nature of work by itself would not necessarily indicate
independent contractor classification. This factor weighs in favor of
the individual being an employee to the extent the work relationship is
instead by design indefinite in duration or continuous.
(iii) Whether the work is part of an integrated unit of production.
This factor weighs in favor of an individual being an independent
contractor to the extent his or her work is segregable from the
potential employer's production process. This factor weighs in favor of
the individual being an employee to the extent his or her work is a
component of the potential employer's integrated production process for
a good or service. This factor is different from the concept of the
importance or centrality of the individual's work to the potential
employer's business.
(iv) Additional factors. Additional factors may be relevant in
determining whether an individual is an employee or independent
contractor for purposes of the FLSA, but only if the factors in some
way indicate whether the individual is in business for him- or herself,
as opposed to being economically dependent on the potential employer
for work.

Sec. 795.110 Primacy of actual practice.

In evaluating the individual's economic dependence on the potential
employer, the actual practice of the parties involved is more relevant
than what may be contractually or theoretically possible. For example,
an individual's theoretical abilities to negotiate prices or to work
for competing businesses are less meaningful if, as a practical matter,
the individual is prevented from exercising such rights. Likewise, a
business' contractual authority to supervise or discipline an
individual may be of little relevance if in practice the business never
exercises such authority.

Sec. 795.115 Examples of analyzing economic reality factors.

(a) The following illustrative examples demonstrate how the factors
listed in Sec. 795.105(d) may be analyzed under the facts presented
and are limited to substantially similar factual situations.
(b)(1)(i) Example. An individual is the owner and operator of a
tractor-trailer and performs transportation services for a logistics
company. The owner-operator substantially controls the key aspects of
the work. However, the logistics company requires the owner-operator to
comply with federally-mandated transportation safety rules requiring
drug and alcohol testing. The company also requires the owner-operator
to meet certain contractually agreed-upon delivery deadlines, and her
contract includes agreed-upon incentives for meeting, and penalties for
missing, the deadlines.
(ii) Application. The owner-operator exercises substantial control
over key aspects of her work, indicating independent contractor status.
The fact that the company requires the owner-operator to complete
certain drug and alcohol testing does not change the above conclusion.
This measure is implemented in order to comply with specific legal
obligations and to ensure safety, and thus under Sec. 795.105(d)(1)(i)
would not constitute control that makes the owner-operator more or less
likely to be an employee under the Act. The contractually agreed-upon
delivery deadlines, incentives, and penalties are typical of
contractual relationships between businesses and likewise would not
constitute control that makes the owner-operator more or less likely to
be an employee under the Act.
(2)(i) Example. An individual accepts assignments from a company
that provides an app-based service linking those who need home-repair
work with those who perform home-repair work. The individual is able to
meaningful increase his earnings by exercising initiative and business
acumen and by investing in his own equipment. The company, however, has
invested millions of dollars in developing and maintaining the app,
marketing itself, maintaining the security of information submitted by
actual and prospective customers and workers, and monitoring customer
satisfaction with the work performed.
(ii) Application. The opportunity for profit or loss factor favors
independent contractor status for the individual, despite the
substantial difference in the monetary value of the investments made by
each party. While the company may have invested substantially more in
its business, the value of that investment is not relevant in
determining whether the individual has a meaningful opportunity for
profit or loss through his initiative, investment, or both.
(3)(i) Example. An individual worker works full time performing
home renovation and repair services for a residential construction
company. She is also the part owner of a food truck, which she operates
on weekends. In performing the construction work, the worker is paid a
fixed hourly rate, and the company determines how many and

[[Page 9975]]

which tasks she performs. Her food truck recently became very popular
and has generated substantial profits for her.
(ii) Application. With regard to the construction work, the worker
does not have a meaningful opportunity for profit or loss based on her
exercise of initiative or investment, indicating employee status. She
is unable to profit, i.e., increase her earnings, by exercising
initiative or managing investments because she is paid a fixed hourly
rate and the company determines the assignment of work. While she earns
substantial profits through her food truck, that is a separate business
from her work in the construction industry, and therefore is not
relevant to the question of whether she is an employee of the
construction company or in business for herself in the construction
industry.
(4)(i) Example. An individual worker works for a commercial
construction company and is assigned to the crew that installs roofs on
buildings. The company required no roofing skills when he started
working for it, and he had no roofing skills when he started. Over his
time working for the company, the individual has developed skills
through on-the-job experience and training provided by the company.
(ii) Application. The work performed by this individual requires no
specialized training or skill, and the individual relies on the
construction company to provide any training necessary to perform the
work. Accordingly, the skill factor weighs in favor of the individual
being an employee. The fact that the individual has developed skills
over his time at the company does not change that outcome because those
skills resulted from on-the-job experience and training provided by the
company.
(5)(i) Example. An individual performs roofing work for a
commercial construction company. He has specialized training in roofing
and relies on his own skills to perform the work. The construction
company provides him with no training and hired him based on his
roofing skills and expertise. The individual touted his roofing skills
when securing roofing work from the company and similarly relies on
those skills when seeking work from other companies.
(ii) Application. This individual brings his own skills to the work
and does not rely on the construction company to provide training.
Accordingly, the skill factor weighs in favor of the individual being
an independent contractor. The fact that the individual used his
specialized skills to secure the work would not be considered under
this factor, although it could be indicative of initiative to consider
under the opportunity for profit or loss factor.
(6)(i) Example. A housekeeper works for a ski resort every winter.
At the end of each winter, he stops working for the ski resort because
the resort shuts down. At the beginning of each of the past several
winters, the housekeeper returned to his prior position at the ski
resort without formally applying or interviewing.
(ii) Application. The housekeeper has a long-term and indefinite
work relationship with the ski resort under the permanence factor,
which weighs in favor of classification as an employee. That his
periods of working for the ski resort end at the end of each winter is
a result of the seasonal nature of the ski industry and is thus not
indicative of a sporadic relationship. The fact that the housekeeper
returns to his prior position each new season indicates that his
relationship with ski resort does not end and is indefinite as a matter
of economic reality.
(7)(i) Example. An editor works part-time for a newspaper. The
editor works from home and is responsible for assigning and reviewing
many articles published by the newspaper. Sometimes she also writes or
revises articles. The editor is responsible for determining the layout
and order in which all articles appear in the newspaper's print and
online editions. She makes assignment and layout decisions in
coordination with several full-time editors who make similar decisions
with respect to different articles in the same publication and who are
employees of the newspaper.
(ii) Application. The editor is part of an integrated unit of
production of the newspaper because she is involved in the entire
production process of the newspaper, including assigning, reviewing,
drafting, and laying out articles. This factor points in the direction
of her being an employee of the newspaper. This conclusion is further
supported by the fact that the editor performs the same work as
employees of the newspaper in coordination with those employees. The
fact that she does not physically work at the newspaper's office does
not outweigh these more probative considerations of the integrated unit
factor.
(8)(i) Example. A journalist writes articles for a newspaper on a
freelance basis. The journalist does not have an office and generally
works from home. He submits an article to the newspaper once every 2 to
3 weeks, which the newspaper may accept or reject. The journalist
sometimes corresponds with the newspaper's editor regarding what to
write about or regarding revisions to the articles that he submits, but
he does not otherwise communicate or work with any of the newspaper's
employees. The journalist never assigns articles to others nor does he
review or revise articles that others submit. He is not responsible for
determining where his article or any other articles appear in the
newspaper's print and online editions.
(ii) Application. The journalist is not part of an integrated unit
of production of the newspaper, indicating independent contractor
status. His work is limited to the specific articles that he submits
and is completely segregated from other parts of the newspaper's
processes that serve its specific, unified purpose of producing
newspapers. It is not relevant in analyzing this factor that the
writing of articles is an important part of producing newspapers.
Likewise, the fact that he works at home does not strongly indicate
either status, because the nature of the journalist's work is such that
the physical location where it is performed is largely irrelevant.

Sec. 795.120 Severability.

If any provision of this part is held to be invalid or
unenforceable by its terms, or as applied to any person or
circumstance, or stayed pending further agency action, the provision
shall be construed so as to continue to give the maximum effect to the
provision permitted by law, unless such holding shall be one of utter
invalidity or unenforceability, in which event the provision shall be
severable from this part and shall not affect the remainder thereof.

PART 825--THE FAMILY AND MEDICAL LEAVE ACT OF 1993

0
5. The authority citation for part 825 continues to read as follows:

Authority: 29 U.S.C. 2654; 28 U.S.C. 2461 note (Federal Civil
Penalties Inflation Adjustment Act of 1990); and Pub. L. 114-74 at
sec. 701.

0
6. Amend Sec. 825.102 by revising paragraph (1) of the definition of
``Employee'' to read as follows:
The term employee means any individual employed by an employer, and
the criteria set forth in Sec. Sec. 795.105 through 795.110 of this
chapter apply to any determination of whether an individual is an
employee or independent contractor;
0
7. Amend Sec. 825.105 by revising paragraph (a) to read as follows:
(a) The definition of employ for purposes of FMLA is taken from the
Fair Labor Standards Act, Sec. 3(g), 29 U.S.C.

[[Page 9976]]

203(g). The courts have made it clear that the employment relationship
under the FLSA is broader than the traditional common law concept of
master and servant. The difference between the employment relationship
under the FLSA and that under the common law arises from the fact that
the term ``employ'' as defined in the Act includes ``to suffer or
permit to work.'' The courts have indicated that, while ``to permit''
requires a more positive action than ``to suffer,'' both terms imply
much less positive action than required by the common law. The courts
have said that there is no definition that solves all problems as to
the limitations of the employer-employee relationship under the Act;
and that determination of the relation cannot be based on isolated
factors or upon a single characteristic or technical concepts, but
depends ``upon the circumstances of the whole activity'' including the
underlying ``economic reality.'' In general an employee, as
distinguished from an independent contractor who is engaged in a
business of his/her own, is one who ``follows the usual path of an
employee'' and is dependent on the business which he/she serves. The
criteria set forth in Sec. Sec. 795.105 through 795.110 of this
chapter apply to any determination of whether an individual is an
employee or independent contractor.

Dated: February 25, 2026.
Andrew B. Rogers,
Administrator, Wage and Hour Division.
[FR Doc. 2026-03962 Filed 2-26-26; 8:45 am]
BILLING CODE 4510-27-P