Federal Enforcement Paused – But Don’t Get Comfortable
On May 1, 2025, the U.S. Department of Labor (DOL) issued Field Assistance Bulletin No. 2025-1, directing its Wage and Hour Division (WHD) investigators not to apply the 2024 Independent Contractor Rule in enforcement actions. Instead, they were told to rely on prior guidance while the agency reassesses whether to revise or rescind the rule. This shift comes as the DOL faces both legal challenges and political pressure from the Trump Administration, which has signaled interest in reverting to the more employer-friendly first Trump-era rule that prioritized fewer and narrower factors.
Background on the Federal Independent Contractor Rule
The 2024 rule, which we previously told you took effect in March 2024, reinstated a broader version of the “economic realities” test to determine whether workers are economically dependent on an employer or truly in business for themselves. It replaced the 2021 rule issued during the first Trump Administration.
Under the 2024 rule, six non-exclusive factors are considered:
- Opportunity for profit or loss depending on managerial skill
- Investments by the worker and the employer
- Degree of permanence of the working relationship
- Nature and degree of control over the work
- Whether the work is integral to the employer’s business
- Skill and initiative required for the work
The DOL emphasized that no one factor is determinative. Rather, what matters is the totality of the circumstances and whether the worker is economically dependent on the business.
Now, despite the rule technically remaining in effect, WHD investigators have been instructed not to use it, raising uncertainty for employers navigating classification decisions.
And it gets even more complicated for New York companies.
New York State’s Stricter Standard Remains in Effect
Regardless of changes at the federal level, the New York State Department of Labor (NYS DOL) continues to enforce a more rigid, pro-worker approach to classification. In New York, the key question is whether the employer controls or directs the work performed. Important indicators include:
- Setting work schedules or hours
- Providing tools or equipment
- Supervising work directly
- Restricting outside work
- Requiring attendance at meetings
Even if there’s a signed contract labeling someone an independent contractor, the NYS DOL will look at the reality of the working relationship. And they typically dig into the realities, asking questions of the worker, others who are in a position to observe the relationship, and the company’s managers.
Separate Business Entity Test
For a worker to be considered a legitimate independent contractor as a business entity, New York law requires a 12-part test to be fully met. This includes:
- Freedom from direction or control
- Providing their own tools
- Incurring their own expenses
- Offering services to the public
- Filing taxes as a business entity
Missing just one of these criteria may result in reclassification from independent contractor to W-2 employee, resulting in the company’s owing more money to the State and the worker.
Freelance Isn’t Free Act in NY
As we’ve written about before, effective August 28, 2024, New York’s Freelance Isn’t Free Act – another worker-friendly statute – imposes strict contract and payment rules for engagements that cost over $800 in a 120-day period. Freelancers – also known as independent contractors – are entitled to:
- Written contracts
- Timely payment
- Legal recourse (including attorneys’ fees) for violations
New York businesses are smart to review their workers and ensure contracts are in place for independent contractors who fit this criteria.
Why Dual Compliance Matters for New York Businesses
Even though federal enforcement around independent contractors is paused, New York employers still must comply with the State’s stricter requirements. Misclassifying workers can lead to:
- Wage and hour penalties
- Unemployment and workers’ comp contributions
- Tax audits
- Civil litigation
Remember, federal leniency doesn’t override New York’s active enforcement.
Bottom Line
The classification of workers as independent contractors or employees remains in flux federally, but not in New York.
Businesses operating in the State should:
- Review worker classifications regularly
- Align with New York’s stricter standards
- Maintain strong documentation
- Get legal guidance before engaging independent contractors
The safest route in 2025? When in doubt, treat workers as employees – or be absolutely certain they qualify as independent contractors under both New York State and federal law.
