In this blog, Suna’s Client Success Partner, Hasti Khodadad, unpacks current developments in the Independent Contractor Requirements in the U.S.; covering federal, state level enforcement trends and what businesses need to know to stay compliant in 2025 and beyond.
Independent contractors have always been a vital part of the U.S. workforce but figuring out how to classify them correctly has never been simple. In 2025, the rules are shifting again, and for businesses like ours at Suna Solutions, it’s critical to stay ahead of these changes.
Where Things Stand Federally
At the federal level, classification rules have been in a tug of war.
The DOL’s 2024 Final Rule:
In January 2024, the U.S. Department of Labor introduced a stricter “economic reality” test, making it more challenging to classify someone as an independent contractor. However, as of May 1, 2025, the DOL issued a Field Assistance Bulletin telling its investigators not to enforce that rule. Instead, they’re back to using the older “economic realities” test from Fact Sheet #13 (2008) and Opinion Letter FLSA2019-6.
What This Means in Practice:
For federal investigations, we’re operating under the pre 2024 test. But the 2024 rule hasn’t disappeared, it can still be used in private lawsuits, so the legal risk hasn’t gone away.
IRS Rules:
The IRS applies its own common law test, which looks at behavioral control, financial control and the relationship between the parties.
Why State Laws Still Rule the Day
For staffing and HR teams like ours, state specific rules can be the real deal breaker.
California’s AB 5:
This is one of the strictest laws, using the ABC test that presumes workers are employees unless all three criteria are met. Proposition 22 carved out an exception for app based drivers, but most businesses still face the tougher ABC standard.
Massachusetts & New Jersey:
Also use strict ABC tests, meaning compliance here requires extra care.
Other States:
Many stick to common law tests, which can be more flexible, but the criteria still need to be met.
Potential Changes on the Horizon
Legislation to Watch:
The Modern Worker Empowerment Act would shift classification rules back toward a more business friendly standard.
The Modern Worker Security Act and other “safe harbor” bills would allow companies to offer benefits to independent contractors, like retirement or health plans, without triggering employee reclassification.
Portable Benefits Discussions:
We’re seeing growing bipartisan interest in portable benefits, systems that follow the worker regardless of who they contract with. This could create a new type of protected contractor status.
DOL Direction:
The current pause on enforcing the 2024 rule suggests the federal government may move toward more flexible classification standards again.
My Takeaways for Businesses and Contractors
From what I’m seeing at Suna Solutions, here’s what matters right now for Independent Contractor Requirements in the U.S.:
Audit and Document:
Make sure your independent contractor arrangements meet both federal and state criteria, especially in stricter states.
Written Agreements:
Some states, like California, now require written contracts for certain contractor relationships. Even if it’s not required, it’s best practice.
Stay Flexible:
The rules aren’t static, what’s compliant today might not be tomorrow. Stay informed and adapt quickly.
Consider the Risk Landscape:
Even if the DOL isn’t enforcing the 2024 rule, private lawsuits can still use it.
Final Word:
We may not have a one-size fits all national standard yet, but we do have to work within the patchwork we’ve been given. That means understanding both the federal framework and the nuances of state law. At Suna Solutions, we’re keeping a close watch on legislative developments so we can guide our clients and our contractors through whatever comes next.