2026年3月19日

DOL Proposes New Independent Contractor Rule to Replace Biden-Era Regulation

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On February 26, 2026, the US Department of Labor announced a proposed rule to rescind and replace the Biden Administration’s 2024 independent contractor classification rule. The proposed rule was published in the Federal Register on February 27, with comments due by April 28, 2026. This marks the latest development in a regulatory seesaw over worker classification that has had significant implications for employers across industries.

Background

The question of whether a worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA) is governed by the “economic reality” test, which examines whether a worker is economically dependent on the hiring entity or truly in business for themselves. Although the DOL had issued guidance on this issue over the years, it did not engage in formal rulemaking until the first Trump administration, which in January 2021 issued a rule (the “2021 Rule”) elevating two “core” factors—control and opportunity for profit or loss—over other considerations. The Biden administration later withdrew and replaced that rule with a March 2024 regulation (the “2024 Rule”) that adopted a six-factor totality-of-the-circumstances test and signaled stricter, more employee-friendly enforcement.

The six factors identified by the 2024 Rule as “tools or guides to conduct a totality-of-the-circumstances analysis” are: (1) the worker’s opportunity for profit or loss depending on managerial skill; (2) investments by the worker and the potential employer in the relationship; (3) the degree of permanence of the work relationship; (4) the nature and degree of the hiring entity’s control over the work performed by the worker; (5) the extent to which the work performed is an integral part of the potential employer’s business; and (6) the worker’s skill and initiative. As noted by the DOL in the proposed rule, “[t]he 2024 Rule does not identify any core factors or otherwise elaborate on the relative importance of these factors, advising instead that ‘no one factor or subset of factors is necessarily dispositive’ and ‘the weight to give each factor may depend on the facts and circumstances of the particular relationship.’”

After President Donald Trump returned to office, the DOL announced in May 2025 that it would no longer enforce the 2024 Rule, and the proposed rule aims to formally rescind and replace the 2024 Rule.

Key Features of the Proposed Rule

Based on the DOL’s announcement and the full text of the proposed rule, the key features include:

Ultimate Inquiry: Economic Dependence

The proposed rule frames the ultimate inquiry with respect to worker classification as whether an individual is “economically dependent” on an employer for work (indicating employee status) or is “in business for him- or herself” (indicating independent contractor status). Importantly, economic dependence does not focus on the amount of income the worker earns or whether the worker has other sources of income. Rather, it refers to the type of dependence that a typical employee has on an employer, as opposed to a relationship with “more of the nature and character of a business owner.”

Reinstatement of “Core Factors” Analysis

The proposed rule would reinstate the 2021 rule’s approach of identifying two “core” factors that typically carry greater weight than other factors in the economic reality analysis:

(1) Control: The nature and degree of the worker’s control over the work—weighing toward independent contractor status where the worker exercises substantial control over key aspects of the work (such as setting their own schedule, selecting projects, and working for others, including competitors).

(2) Opportunity for Profit or Loss: The worker’s opportunity to earn profits or incur losses based on their exercise of initiative (such as managerial skill or business judgment) or management of their investment in helpers, equipment, or materials. For example, this factor would weigh toward the worker being an employee “to the extent the individual is unable to affect his or her earnings or is only able to do so by working more hours or faster,” rather than based on their exercise of initiative or investment, because the worker is unable to profit—i.e., increase their earnings—by exercising initiative or managing investments if they are paid a fixed hourly rate and the employer determines the assignment of work. Notably, both the individual worker’s exercise of initiative and the worker’s management of investment will be considered under this factor, rather than as a separate factor, which was the case in the 2024 rule. In addition, only the worker’s own investment is relevant, rather than an analysis of the relative investment of the worker as compared with the employer’s investment.

Under the proposed rule, if both core factors point toward the same classification (either employee or independent contractor), there is a “substantial likelihood” that such classification is the individual’s “accurate classification.”

Other Economic Reality Factors

The proposed rule identifies three additional factors that serve as “guideposts” in analyzing worker classification, but carry less weight.

Skill: Whether the work requires specialized training or skill that the potential employer does not provide. As noted above, unlike the 2024 Rule, the worker’s exercise of initiative (e.g., whether the worker uses specialized skills in connection with a business-like initiative) is not considered as part of this factor; initiative is evaluated under the opportunity for profit/loss factor instead.

Permanence: Whether the work relationship is by design definite in duration or sporadic (favoring independent contractor status) versus indefinite or continuous (favoring employee status). Unlike the 2024 Rule, exclusivity (i.e., whether the worker works only for one entity or has multiple clients) is not considered here; it is evaluated under the control factor, which considers whether the worker has the ability to work for others.

Integrated Unit of Production: Whether the individual’s work is segregable from the potential employer’s production process (favoring independent contractor status) or is an integrated component (favoring employee status). This differs from the 2024 Rule’s inquiry into whether work is an “integral part” (i.e., “critical, necessary, or central”) to the employer’s principal business.

In addition, the proposed rule notes that “[a]dditional factors may be relevant in determining whether an individual is an employee or independent contractor for purposes of the FLSA, but only if the factors in some way indicate whether the individual is in business for him- or herself, as opposed to being economically dependent on the potential employer for work.” For example, the “integral part” factor could still be analyzed as an “other factor” to the extent it is probative as to this question.

Regardless, the DOL notes that other factors are “less probative” and “highly unlikely, either individually or collectively, to outweigh the combined probative value of the two core factors.”

Other Key Provisions

The proposed rule also:

Emphasizes that “actual practice” is more relevant than what is contractually or theoretically possible;
Clarifies that compliance-related requirements (legal obligations, safety standards, insurance, quality control) do not constitute control indicative of employment;
Extends the economic reality test to the Family and Medical Leave Act (“FMLA”) and Migrant and Seasonal Agricultural Worker Protection Act (“MSPA”), creating a uniform standard across all three statutes;
Includes eight illustrative examples demonstrating how the factors apply in various scenarios;
States that the rescission of the 2024 rule is “independent and severable” from the new framework—meaning if the new regulations are invalidated, the 2024 rule would still be rescinded; and
Seeks comment on a potential “control-first” alternative approach. Under this alternative, the control factor would be considered first, and if it indicates employee status, the analysis would end there. Other factors would only be considered if control indicates independent contractor status or is neutral. This could further streamline the classification analysis.

Comment Period

The public comment period is currently open and closes on April 28, 2026.

DOL’s Rationale for Rescinding the 2024 Rule

The DOL explained that it was rescinding the 2024 Rule because it lacked clarity, created a potential chilling effect on legitimate independent contractor arrangements, and featured redundant factors. The DOL concluded that the 2024 Rule “could be viewed as setting a higher bar to find independent contractor status than the law requires.” The DOL also considered, but rejected, other regulatory approaches, including: the common law control test (deemed too permissive given its focus on the control factor, in light of the FLSA’s broader “suffer or permit” definition of employment); the DOL Wage and Hour Division’s current “FLSA Independent Contractor Misclassification Enforcement Guidance,” set forth in Field Assistance Bulletin (FAB) No. 2025-1 (because it does not “expressly recognize any ‘core’ factors” and therefore “lacks specific guidance on how to weigh the factors when applying the multi-factor economic reality analysis”); and the ABC test used in California and other states (deemed “too restrictive” and inconsistent with the Supreme Court’s institution of the economic reality test).

Pending Litigation

Five lawsuits challenging the 2024 Rule remain pending, though each has been stayed based on the DOL’s representation that it intends to reconsider the rule. DOL officials indicated that the proposal of the new rule would not affect that pending litigation.

Key Takeaways for Employers

Comment Opportunity: Employers and industry groups should consider submitting comments on the proposed rule by the April 28 deadline, including on the DOL’s alternative “control-first” approach.
Favorable Enforcement Environment: The current DOL enforcement posture is employer-friendly, and the proposed rule signals that this approach will continue. Employers may find it easier to classify workers as independent contractors under the proposed framework than under the 2024 Rule.
Broader Application: If finalized, the proposed rule would apply a uniform standard across the FLSA, FMLA, and MSPA—providing greater consistency for employers subject to multiple statutes.
Compliance Requirements Clarified: The proposed rule’s clarification that compliance-related requirements do not constitute control may provide comfort to employers who impose safety, quality, or legal compliance standards on their independent contractors.
Courts Are Not Bound by DOL Rules: While DOL rules may be persuasive, courts apply their own variations of the economic reality test and are not required to follow DOL guidance. The 2024 Rule technically remains on the books until formally rescinded and may still be cited in private litigation.
Review Existing Classifications: Employers that use independent contractors should review their current worker classifications and independent contractor agreements to ensure they address all factors that would be considered under the economic reality test—not just the two “core” factors emphasized by the proposed rule.
Align Practices with Agreements: Day-to-day practices are critical to the classification analysis. The proposed rule explicitly states that actual practice is more relevant than what is contractually or theoretically possible. Employers should ensure that actual working relationships conform to the terms of their independent contractor agreements.
Monitor State Law Developments: Regardless of the federal regulatory framework, several states impose stricter worker classification standards. California, New Jersey, Massachusetts, and Illinois, among others, apply the more employee-friendly “ABC test,” which requires employers to prove that: (1) the worker is free from the hiring entity’s control and direction; (2) the work is outside the hiring entity’s usual course of business; and (3) the worker is customarily engaged in an independently established trade, occupation, or business. Employers with workers in these states must ensure compliance with applicable state law requirements regardless of federal standards.
Stay Flexible: Given the shifting regulatory environment over the past several years, employers should remain prepared to adapt if the regulatory landscape changes again.