Independent Contractor Classification: DOL’s Changeup in Enforcement
The Department of Labor’s recent changeup on independent contractor enforcement—walking back the restrictive 2024 Rule and returning to a more business-friendly framework—may seem like a home run for government contractors. But beneath this regulatory shift lies a compliance squeeze play that could expose contractors to costly errors and False Claims Act violations. If you’re a government contractor using independent contractors, understanding what this enforcement shift means for your business is next up on your plate.
The Regulatory Swing
In May 2025, the DOL issued guidance directing its Wage and Hour Division to stop enforcing the 2024 Rule on independent contractor classification. The 2024 Rule had made it significantly harder to classify workers as independent contractors by emphasizing ‘economic dependence’ and creating a presumption toward employee status. The DOL’s new guidance instructs investigators to return to the 2008 Fact Sheet and 2019 Opinion Letter framework—a more flexible, multi-factor ‘economic realities’ test.
In January 2026, the DOL sent a proposed rule to the Office of Management and Budget for review, signaling the administration’s intent to formally replace the 2024 Rule with new regulations. While the proposed rule’s content isn’t yet public, it’s expected to align with the more contractor-friendly approach outlined in the May 2025 guidance.
Why Government Contractors Are in the Strike Zone
The 2024 Rule remains ‘on the books’ for purposes of private litigation. This means government contractors face a switch-hitting dual-standard environment where Federal DOL investigators will apply the more lenient 2008 framework but private plaintiffs can still argue for the stricter 2024 Rule.
For government contractors, this regulatory curveball is compounded by the unique compliance obligations tied to federal contracts. A worker you’ve classified as an independent contractor under the current DOL enforcement standard could still be deemed an employee by a court applying the 2024 Rule—and if that worker is performing on a Service Contract Act or Davis-Bacon Act contract, you’ve potentially hit into a False Claims Act violation.
What Government Contractors Should Do Now: Cover All Your Bases
Conduct a Classification Audit Using Both Standards
Don’t wait to be called out by a DOL investigation. Review every independent contractor relationship now, applying both the 2008 framework (current DOL enforcement) and the 2024 Rule (still available to private plaintiffs). Prioritize workers on SCA or DBA contracts—these present the largest strike zone for False Claims Act exposure.
Play Good Defense: Strengthen Documentation for Legitimate Contractors
For workers who are properly classified as contractors, strengthen your documentation. Written agreements must clearly establish: project-based scope of work, the contractor’s right to refuse work and work for others, that the contractor provides their own tools and equipment, payment by project or deliverable, and no employee benefits or training.
Review Federal Contract Compliance
For SCA-covered contracts, verify that all service employees are receiving prevailing wages and fringe benefits as specified in the wage determination. For DBA contracts, ensure all laborers and mechanics are on certified payrolls and receiving prevailing wages. If you discover misclassification, consider whether voluntary disclosure is appropriate before an audit or complaint triggers an investigation.
Don’t Strike Out
The DOL’s shift to a more business-friendly enforcement approach is a fastball down the middle, but it doesn’t eliminate misclassification risk—especially for government contractors. The dual-standard environment created by the transition period, combined with unique compliance obligations of federal contracts, means that now is the time to get your team ready.
The regulatory field will continue to evolve as the proposed rule makes its way through the rulemaking process. But you can’t wait for final regulations to address compliance gaps. Take action now: audit your classifications, strengthen your documentation, and build compliance processes that can adapt to changing standards.
Having worked with government contractors through numerous compliance challenges, we understand the complexities of navigating shifting DOL standards while managing the unique obligations of federal contracts. Ward & Berry is here to help. If you have questions about independent contractor classification, need assistance with a compliance audit, or are facing a misclassification claim or investigation, please don’t hesitate to contact our team.