DOL Proposes Overhaul of Worker Classification Rules

Core Factor Test Proposed for Defining Employees and Independent Contractors

The test for distinguishing between an independent contractor and an employee may be in for a shift.

On February 26, 2026, the U.S. Department of Labor, Wage and Hour Division (DOL) issued a proposed rule that would revise the standard for determining independent contractor status under federal law. The proposed rule—“Employee or Independent Contractor Status under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act”—is a progeny of a similar framework from the first Trump administration. If finalized, the rule will rescind the existing Biden administration rule for evaluating worker classification.

Employers need to be aware of this proposed rule because it will impact whether a worker is entitled to employee benefits and protections, such as minimum wage, paid sick leave and overtime pay. This is particularly true for sectors that traditionally utilize independent contractors, such as the ridesharing, construction, agriculture and food delivery industries.

A Brief History of Independent Contractor Tests

The “Economic Realities” Test

In the 1940s, the U.S. Supreme Court created a functional definition of an employee under the FLSA: Employees are workers who are economically dependent on a particular employer for work. Conversely, independent contractors are in business for themselves and are not dependent on an employer for labor.

The 2007 Rule

In 2007, the DOL first published a multifactor test for distinguishing between employees and contractors. The factors were non-exclusive and borrowed from what recent U.S. Supreme Court jurisprudence had considered significant in assessing employee status.

The 2021 Rule

Under the first Trump administration, the DOL purported to simplify the then-existing multifactor test by narrowing its focus to two “core” factors: (1) the nature and degree of a worker’s control over the work; and (2) the worker’s opportunity for profit or loss. Under this 2021 Rule, these two core factors carried the most probative weight in determining worker status and were to be minimally informed by three secondary factors: (3) the skill level required for the job; (4) the permanence of the working relationship between the worker and their employer; and (5) whether the work was part of an integrated unit of production.

The 2024 Rule (Currently in Effect)

Shortly after the 2021 Rule was issued, the Biden administration effectively rescinded it and reinstated the six-factor test for determining worker status, which considers criteria such as the worker’s skill and initiative, relative investments by the worker and employer, and permanence of their working relationship. Under this framework, each factor is equally weighted, and none is dispositive. That is, the 2021 Rule uses a “totality of circumstances” test.

The New Proposed Rule

The new rule returns to the 2021 standard, emphasizing a worker’s control over their work and their opportunity for profit or loss as primary indicators of whether an individual is economically dependent on their employer. The other three factors proposed in 2021 are also reinstated as secondary guidelines for assessing worker classification. The DOL proposes to apply this test to the Family and Medical Leave Act (FMLA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

While the proposed rule is strikingly similar to the 2021 Rule, it introduces a few new modifications to clarify how a worker’s economic dependence on their employer should be assessed. Specifically, the proposal emphasizes that the central inquiry should be a worker’s dependence on an employer for work, as opposed to dependence for income. Accordingly, the analysis should not consider (i) whether a worker has other sources of income, nor (ii) the amount of income the worker earns.

If the proposed rule becomes final, the DOL will again use the 2021 Rule’s five-factor test, placing the most emphasis on the first two factors:

• Factor 1 – Nature and degree of worker’s control over the work: More worker control (and less employer control) weighs in favor of independent contractor status. Some examples include whether the worker can set their own schedule or select their own projects. Less worker control means the worker is more likely an employee.
• Factor 2 – Worker’s opportunity for profit or loss: If a worker can make entrepreneurial and management decisions that result in their incurring profits or losses, then they are more likely to be classified as an independent contractor. If they can’t, they are more likely an employee.
• Factor 3 – Required skill level: If the work requires pre-existing specialized training that the employer does not provide to the worker, then that worker is more likely to be an independent contractor. Conversely, workers who require no specialized training for the job or learn their skills from the employer are more likely to be considered employees.
• Factor 4 – Permanence of the working relationship: Definite or sporadic worker projects weigh in favor of independent contractor status. On the other hand, indefinite periods of service suggest the worker may be an employee.
• Factor 5 – Integrated unit of production: If a worker’s tasks occur outside of the employer’s production process, then they are more likely to be considered independent contractors.

Why the Change?

The DOL criticized the 2024 Rule for repeating similar concepts across multiple factors, resulting in overlap and redundancy. The DOL also suggested that appraising six factors equally, without guidelines as to how to weigh them, risks ambiguity. The proposed rule seeks to establish a clearer, more predictable framework for determining worker status.

The proposed rule also aims to benefit independent contractors, according to the DOL. For example, the DOL noted that under the current framework, assessing a worker’s and employer’s relative investments could disadvantage contractors, since a company’s investment will likely exceed that of an individual contractor. If the test is too complicated or burdensome to meet, employers may simply abandon independent contractors in favor of employees.

Practical Next Steps

The rule is currently published in the Federal Register, as of February 27, 2026. The DOL will also accept public comments until April 28, 2026. Employers affected by this rule—i.e., those currently using or considering using independent contractors—should consider submitting comments during this 60-day period.

If the proposed rule is finalized, employers should reassess their independent contractor contracts through the lens of the new standard, ensuring that worker status is not impacted.

In the meantime, employers should also consider that the proposed rule does not affect the analysis for determining worker classification under other laws or standards. For example, these changes do not preempt state wage-and-hour laws that use other tests, such as New York, California or New Jersey. Employers should continue to follow all applicable state and local laws to ensure they are in compliance with all relevant standards.