On February 26, 2026, the U.S. Department of Labor (DOL) released a proposed rule that would change how employers determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA).
If finalized, the proposal would rescind the 2024 independent contractor rule and replace it with an analysis similar to the framework issued in 2021. Public comments on the proposal are open through April 28, 2026.
What the Proposed Rule Would Change
The proposal retains the long-standing economic reality test, which focuses on whether a worker is economically dependent on an employer or is operating independently.
However, the weighting of factors would shift.
Greater Emphasis on Two Core Factors
Under the proposed rule, two factors would carry greater weight:
- The nature and degree of control over the work
- The worker’s opportunity for profit or loss based on initiative or investment
The DOL indicates that if both core factors point in the same direction, there is a substantial likelihood that the resulting classification would be appropriate. This differs from the 2024 rule, which applied a broader totality-of-the-circumstances framework without prioritizing specific factors.
Additional Factors Remain Relevant
Other considerations may still include:
- The level of skill required
- The permanence of the working relationship
- Whether the work is part of an integrated unit of the business
These additional factors are not exhaustive, and no single factor is dispositive. However, under the proposal, they would generally carry less weight than the two core factors and are unlikely to outweigh them if the core factors align.
Actual Working Conditions Over Contract Language
The DOL emphasizes that the actual working relationship matters more than what is contractually possible or written in an agreement. Simply labeling a worker as an independent contractor does not determine status. Day-to-day operations and the real dynamics of the relationship are central to the analysis.
Clarification on Compliance Requirements
The proposal also states that certain employer requirements don’t automatically demonstrate the level of control associated with employee classification. These include requiring a worker to:
- Comply with legal or regulatory obligations
- Meet health and safety standards
- Carry insurance
- Meet deadlines
This clarification departs from the 2024 rule, which allowed some of these requirements to be weighed as potential evidence of control in appropriate circumstances.
Broader Regulatory Reach
The proposed analysis would apply not only to the FLSA, but also to:
- The Family and Medical Leave Act (FMLA)
- The Migrant and Seasonal Agricultural Worker Protection Act (MSPA)
Both statutes incorporate the FLSA’s definition of employment.
Independent contractors are not entitled to federal minimum wage or overtime pay under the FLSA. They also generally are not covered by unemployment insurance or workers’ compensation, which are governed by separate federal and state laws. As a result, classification decisions can carry significant compliance and financial implications.
Legal Risk Remains
While the proposal may reduce regulatory risk at the DOL level compared to the 2024 standard, courts are not strictly bound by DOL regulations. Independent contractor classification will likely continue to face scrutiny in litigation and from state agencies, many of which apply their own standards.
Industries that rely heavily on contractor relationships, including construction, healthcare, transportation, warehousing, landscaping, ridesharing, and food delivery, may experience the most direct impact if the rule is finalized.
Misclassification can result in liability for unpaid wages, overtime, payroll taxes, penalties, and related claims.
What Employers Should Do Now
With the comment period open through April 28, 2026, the proposal may still evolve before any final rule is issued.
In the meantime, employers that engage independent contractors may consider:
- Reviewing current classification determinations
- Evaluating how much operational control is exercised over contractors
- Comparing written agreements to actual working practices
- Assessing whether contractors have meaningful opportunity for profit or loss
Worker classification remains one of the most frequently litigated wage and hour issues. A structured, well-documented approach can help reduce risk regardless of how the final rule develops.
A Strategic Reminder for HR Leaders
Independent contractor standards have shifted multiple times in recent years. Each regulatory change requires HR and leadership teams to reassess classification decisions, documentation, and operational practices.
Organizations that lack dedicated compliance resources may benefit from experienced HR guidance to help evaluate worker classification and maintain defensible processes as federal and state standards continue to evolve.
We will continue monitoring the DOL’s rulemaking process and provide updates as developments occur.
