The Department of Labor recently finalized its rules defining who can be classified as an independent contractor under federal law. The new restrictions will make it difficult for millions of Americans to maintain their independent status regardless of whether they prefer or need to be independent.

The changes in this rule will be devastating for freelancers and self-employed people across the U.S., especially women who make up over half of freelancers.

Here are 5 Things to Know about the new DOL independent contractor rule:

  1. Sets a stricter new standard for independent contractors. The new rule implements a six-factor test to determine if a worker should be classified as an employee or independent contractor under the Fair Labor Standards Act (FLSA) for benefits like minimum wage and overtime pay. It will replace a rule set under the Trump administration that was considered IC-friendly because it had fewer factors and focused on two factors: the worker’s right to control and the worker’s opportunity for profit or loss. If those two factors pointed to independence, then that was enough to determine independent status. While the new rule does not adopt a restrictive ABC test, such as the one codified by California’s Assembly Bill 5 (AB5), it still will leave far fewer people with an independent contractor status. 
  2. Does not affect state laws. States like California have the dreaded ABC test and the Department of Labor claims this rule does not pre-empt them. However, regardless of which state an independent contractor lives in, she or he will have to abide by federal regulations. For those in states without an ABC test or onerous restrictions, this new rule will add new uncertainty to their status. Companies with independent contractors across multiple states will undoubtedly find ways to comply with this federal rule and that could hurt ICs across the board.
  3. Will lead to job losses. A new analysis from the Mercatus Center quantifies similar restrictions imposed by California through AB5. Self-employment decreased by 10.5% and overall employment decreased by 4.4% on average for affected occupations. For those who assume that employers would hire all of their freelancers as employees, the data did not find an increase in traditional employment undercutting that argument. Labor costs could rise up to 30% for employers and if they are unable to afford those costs, they may choose to lay off their independent contractor workforce for good.
  4. Can be overturned. Congress can vote to overturn this rule. Both Senator Bill Cassidy (R-LA) and Rep. Kevin Kiley have both said they plan to use the Congressional Review Act to overturn this rule. However, even if both Houses of Congress pass it, the margins have to be higher than a presidential veto.
  5. Takes effect on March 11. The rule was proposed in 2022 and finalized in January 2024 with an effective date of March 11. Unless Congress overturns this rule or a court halts its implementation, this rule is expected to take effect.

Companies that hire independent contractors are likely learning about the rule from HR professionals, lawyers, and compliance officers. They are making decisions on how to comply with it. Given that the confusing new multi-factor test will make it more difficult to prove independent contractor status, we can expect that independent contractors may find themselves losing contracts, gigs, and income. 

Sadly, stories of independent contractors losing opportunities are likely to start rolling in. We want to hear yours. Share them with us here

Self-employment, gig work, and freelancing will be changed for the worse because of this new rule. Fewer Americans will be able to depend on these flexible arrangements to earn income or earn a living. As we have explained, this will be detrimental to women, older workers, and people who cannot work in traditional jobs: mothers raising kids, older workers supplementing their retirement incomes, students putting themselves through college, or sick and disabled people managing their health conditions. 

We will continue to watch efforts to stop this rule. Visit our “Chasing Work” page to read stories of those impacted by independent contracting crackdowns.