The Harmony vs Friction Reality of Independent Contractors
The relationship between employers and independent contractors has long been beset by both harmony and friction. With independent contracting, workers enjoy workflow and inherent freedom; employers get a skilled workforce without the need for benefits or other financial—and legal—commitments.
This independent workforce is a huge—and growing—part of the American workforce. Some 72.9 million Americans, or about 45% of the U.S. workforce, performed some form of independent or freelance work in 2025, notes MBO Partners' State of Independence report. Approximately 14% of the U.S. workforce is self-employed, according to the 2025 American Job Quality Study. Many freelancers, like those in IT development, ride-hailing, and food delivery services, for example, seek to preserve their independent status for the flexibility and autonomy it provides.
With this growth, however, comes added challenges for employers. Namely, worker classification. Companies often classify workers as independent contractors to reduce payroll taxes, overtime obligations, unemployment insurance, workers' compensation costs, and employee benefits. A Meta-owned startup, which had classified some among its workforce as independent contractors, recently found itself at the center of this conflict.
Workers and some regulators argue that the nature of the relationship makes many such workers "employees" under federal or state law. Disputes frequently involve unpaid wages, overtime, reimbursement of business expenses, benefits eligibility, noncompete agreements, intellectual property ownership, tax liability, and workplace discrimination protections.
The rise of and reliance on the gig economy has intensified these conflicts, prompting states and federal agencies to adopt or propose stricter tests for determining employment status. Employers also face lawsuits alleging contractor misclassification, which can result in back pay, tax penalties, and fines.
The conflict exists at the highest offices too. The Biden administration rescinded the Trump administration's 2021 Independent Contractor Rule under the Fair Labor Standards Act (FLSA) and replaced it with a broader "economic reality" test that generally made it more difficult for businesses to classify workers as independent contractors. Since returning to office, the Trump administration has sought a return to its 2021 rules, with the proposed rule and comments period having run in late April 2026, but no final rule has been published as of late. The administration's revamped proposed rule returns to its 2021 Independent Contractor Test, which focuses the inquiry on economic dependence, in large part while also reformulating the "economic reality" test. Under this new proposed rule, instead of all factors receiving equal weight, emphasis is placed on two "core" factors: i) the nature and degree of an individual's control over the work; and ii) an individual's opportunity for profit or loss. The proposed rule would have the parties' actual practice drive the analysis, not just the contract. Yet another potential drastic change in the legal landscape highlights the ongoing tug-of-war over worker classification.
The 1938 passage of the FDLA and the "economic reality" test established by the U.S. Supreme Court in 1944, is further complicated today by the scores of federal and state statutes regulating worker classification under a variety of employment and tax laws.
Commonly used independent contractor agreements currently do little to insulate employers from liability. All that matters is whether the relationship meets the DOL's latest qualifiers, and with the shifting political and regulatory sands, who knows where those qualifiers lie?
With the rise of gig work and true independent contractors working ever-more closely as part of their clients' teams, misclassification is driving concerns about worker exploitation—and possible lawsuits by state governments, worker groups, and others.
As laws evolve and remote work expands, businesses must carefully structure contractor relationships to comply with changing legal standards while balancing operational needs and worker expectations.
If your organization uses independent contractors, it might be wise to contact your employment lawyer to see if these shifting sands could impact your business. Tripp Scott's employment law department is happy to help.
