United States Department of Labor Proposes New Independent Contractor Rule

On February 26, 2026, the United States Department of Labor (“DOL”) unveiled a highly anticipated proposed rule that could alter how businesses determine whether workers should be classified as employees or independent contractors. The DOL’s proposed rule, titled “Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act” (the “Proposed Rule”), would rescind and replace the current test (promulgated under the Biden administration) with a slightly modified version of the first Trump administration’s 2021 rule.

The Previous Rule

The current standard for determining whether a worker is an employee or an independent contractor is set forth in the DOL’s final rule that became effective on March 11, 2024 (the “Current Rule”). However, on May 1, 2025, the Trump administration announced that it would no longer enforce the Current Rule, even though that announcement did not formally rescind the Biden‑era regulation.

The Current Rule applies a multi-factor “totality of the circumstances” analysis that weighs the following six factors equally: (1) opportunity for profit or loss depending on managerial skill, (2) investments by the worker and the potential employer, (3) degree of permanence of the work relationship, (4) nature and degree of control, (5) extent to which the work performed is an integral part of the potential employer’s business, and (6) skill and initiative. The Current Rule does not emphasize any single factor over any other factor(s) in determining whether a worker is an employee or an independent contractor.

The New Proposed Rule

The Proposed Rule departs from the Current Rule’s approach, replacing the “totality of the circumstances” analysis with a framework that prioritizes two “core factors”:

1. Nature and Degree of Control. This factor examines whether the worker controls their own work schedule and assignments, and whether they have the ability to work for other parties.
2. Opportunity for Profit or Loss. This factor assesses whether the worker’s compensation reflects their own initiative or management – including managerial skill, business acumen, independent judgment, and self-investment.

Under the Proposed Rule, if both “core” factors point to the same classification, there is a “strong likelihood” that such classification is correct. However, the Proposed Rule retains three “less probative” factors to be considered if the two “core” factors conflict: (1) amount of skill required, (2) degree of permanence of the work relationship, and (3) extent to which the work performed is part of an integrated unit of production. The Proposed Rule also emphasizes that the actual practice of the parties is more relevant than what may be contractually possible.

In connection with its release of the Proposed Rule, the DOL noted that it is focused on facilitating more predictable classifications with an analysis that more accurately reflects a modern economy.

As noted above, the Proposed Rule closely resembles the rule finalized by the first Trump administration in 2021. Unlike the 2021 rule, however, the Proposed Rule establishes a test not only for the Fair Labor Standards Act, but also for the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act.

The Proposed Rule is currently subject to a 60-day public comment period which closes on April 28, 2026.

Key Takeaways for Employers

The classification of workers as employees or independent contractors carries significant implications for businesses. Independent contractors are generally not covered by minimum wage, overtime, benefits, and certain tax-related laws—protections that do apply to employees. Misclassifying a worker as an independent contractor when they should be classified as an employee can expose businesses to liability for unpaid wages, benefits, taxes, and other penalties.

While the Proposed Rule could make it easier to determine whether a worker is truly an independent contractor, the DOL’s emphasis on the parties’ “actual practice” could lead to future disputes in the event the parties’ working relationship is different than their contractual agreement.

It is also important to note that the Proposed Rule, if finalized, would not directly govern employee classification for purposes of state-specific employment laws, which may impose different or additional requirements.

Employers should proactively review their current policies, handbooks, and contractual agreements to assess how the Proposed Rule, if finalized, may impact their operations. Additionally, employers should consult with their legal counsel to ensure compliance with both federal developments and applicable state independent contractor standards.