2025 Legal Shifts Brings Change for School District Employers
If you’re an employer still catching your breath from the whirlwind of labor law changes in 2024, buckle up, 2025 is in full swing. In a year packed with regulatory curveballs, the U.S. Department of Labor (DOL) hit rewind on key pieces of last year’s independent contractor rule, and federal courts continue to tussle over the much-anticipated overtime pay expansion. And did you hear that taxes on tips or overtime pay could be eliminated?
From gig workers to school support staff, employers in all industries are scrambling to recalibrate. Let’s look at what these changes could mean for K-12 school employers like you.
Recent Shift in the DOL’s Independent Contractor Analysis
On May 1, 2025, the DOL issued Field Assistance Bulletin No. 2025-1, signaling a change in how the agency plans to analyze independent contractor determinations. The recent guidance suspends enforcement of a 2024 independent contractor rule finalized during the prior presidential administration. While the 2024 rule is under review by the agency, it will no longer be applied in DOL investigations or enforcement actions. Instead, the DOL will revert to longstanding prior guidance, which emphasizes, among other factors:
- The extent to which the services rendered are an integral part of the employer’s operations
- The permanency of the relationship
- The amount of the contract worker’s investment in facilities and equipment
- The nature and degree of control by the employer
- The contract worker’s opportunities for profit and loss
- The amount of initiative, judgment, or foresight in open market competition required for the success of the contract worker
- The degree of independent business organization and operation
This shift back to the more traditional “economic realities” test may provide employers with more leeway when classifying certain workers as independent contractors. Despite the shift, employers must still exercise great care in making independent contractor determinations. Misclassification remains a high priority for state agencies and the Internal Revenue Service (IRS), which have their own sets of standards for determining when a worker must be classified as an employee. School districts often hire consultants for specialized services, such as curriculum development, technology implementation, or other special projects, on a contract basis. K-12 employers are therefore urged to seek advice from local counsel when determining who is a contractor versus an employee. Employers looking for more guidance can review the Field Assistance Bulletin.
FLSA Overtime Rule Update
In April 2024, the DOL issued a final rule that would have raised the salary thresholds required for certain executive, administrative, and professional employees to be considered exempt under the federal Fair Labor Standards Act (FLSA). However, on November 15, 2024, the U.S. District Court for the Eastern District of Texas vacated the 2024 final rule, finding the rule exceeded the agency’s statutory authority. Lawsuits are currently pending in two other federal district courts challenging the 2024 rule. The U.S. Department of Justice (DOJ) recently requested to hold in abeyance the administration’s appeals in two of these cases to give the agency time to evaluate the April 2024 overtime rule. It is unclear whether the current administration plans to drop the new overtime rule altogether, reconsider only certain aspects of the rule, or leave the rule largely intact.
Whatever the outcome, employers are urged to review worker classification under the FLSA closely. Determining if an employee is exempt from overtime is complex. Even salaried school employees like classroom aides, special education assistants, and certain administrative staff, among others, may be eligible for overtime pay if their salaries fall below the 2019 salary thresholds and/or their duties are non-exempt.
In the meantime, salary thresholds for federal overtime purposes have returned to 2019 levels while this litigation works its way through the courts. For executive, administrative, and professional employees, employers should apply the 2019 rule’s minimum salary level of $684 per week and total annual compensation requirement for highly compensated employees of $107,432 per year. Take time to review the current DOL overtime guidance.
No Tax on Tips or Overtime
While very few (if any) K-12 employees earn tips, school employers likely have questions about how “no tax on overtime” budget proposals could impact them. The U.S. House of Representatives recently passed a legislative package that would allow a temporary tax deduction on their individual income tax returns for workers receiving overtime pay. If passed by the Senate as part of the larger budget reconciliation process, employees who receive qualifying overtime pay (required under section 7 of the FLSA and in excess of the employee’s regular rate) would be able to claim a tax deduction when filing their taxes the following year. The proposed deduction would sunset after tax year 2027.
While this would help the finances of non-exempt employees who are eligible for overtime, it would probably have minimal impact on employers, who would continue to pay overtime and administer payroll as usual. Special reporting may be required to identify those amounts defined as “qualified overtime compensation” under the law for purposes of the individual employee’s tax deduction. We would expect payroll and other vendors to adjust to accommodate.
It’s important to note that these are proposed tax law changes and likely subject to change. To learn more, review a summary of the House legislation.
Conclusion
2025 proves that no rule is safe from revision—or repeal. The key is to stay agile, stay informed, and do your best to stay calm as you juggle the ever-changing rules of compliance. Your people are counting on you!
American Fidelity strives to help education professionals succeed in benefits management. Visit our solutions blog for helpful insights about employee benefits. Ready for a different opinion? Contact us today!
This blog is up to date as of June 2025 and has not been updated for changes in the law, administration or current events.
