DOL’s Proposed 2026 Independent Contractor Rule: What Employers Need to Know

Takeaways

• The Proposed Rule largely restores the 2021 independent contractor final rule issued during the first Trump Administration.
• The two “core” factors carrying the most weight are (1) the nature and degree of the worker’s control over the work and (2) the worker’s opportunity for profit and loss. If both point the same way, classification is usually clear.
• The 60-day public comment period runs through 04.28.26.

Related links

• 91 Fed. Reg. 9932, Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act
• Labor Department Releases Independent Contractor Final Rule, Revising Standard
• Go Fish! U.S. Supreme Court Overturns ‘Chevron Deference’ to Federal Agencies: What It Means for Employers
• Fact Sheet #13: Employment Relationship Under the Fair Labor Standards
  Act (FLSA)

Article

The Department of Labor’s (DOL) Wage and Hour Division (WHD) has issued a Proposed Rule defining “independent contractors” under the Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), and Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

The Proposed Rule restores the independent contractor test in the DOL’s 2021 Rule, issued in the waning days of the first Trump Administration, and formally rescinds and replaces the 2024 Rule issued by the Biden Administration. The 2024 Rule analyzed independent contractor status based on the “totality of the circumstances” using a six-factor test of independent contractor status where no factor was more heavily weighted. Under the now-revived 2021 Trump Administration Rule, two core factors (control over the work and opportunity for profit and loss) are given greater weight and generally are determinative in most cases, according to the Proposed Rule.

The “principal flaw of the 2024 Rule,” according to DOL, is “its failure to provide effective guidance on how different factors in its multi-factor balancing test should be weighted or applied together.” Without such guidance, “engaging individuals as independent contractors could be confusing and risky when different factors point to different classification outcomes.”

DOL states that the 2024 Rule was unworkably vague, led to unpredictable outcomes, and “could be viewed as setting a higher bar to find independent contractor status than the law requires.” As a result, the 2024 Rule had a “chilling effect” on the use of independent contractor arrangements, did not adhere to U.S. Supreme Court precedent, and was incompatible with the modern economy, according to the DOL.

DOL states that its role is not to place a “regulatory finger on one side of the scale or the other” or allow “legal ambiguity to discourage the correct classification of individuals.”

Unlike the 2024 Rule, which applied only to the FLSA, the DOL proposes to apply the same independent contractor analysis to the FMLA and MSPA and make conforming edits to those respective regulations. These statutes incorporate the FLSA’s definitions of “employ” and “employee,” and DOL seeks to adopt a single standard for uniformity and consistency.

The Proposed Rule was published in the Federal Register on Feb. 27, 2026. The DOL invites public comments on the Proposed Rule, to be submitted by April 28, 2026.

Economic Dependence Factors

The Proposed Rule states, “an individual is an independent contractor, as distinguished from an ‘employee’ under the Act, if the individual is, as a matter of economic reality, in business for him or herself.” In contrast, an employee is an individual who, as a matter of economic reality, “is economically dependent on [the] employer for work.” At bottom, as courts have long held, “economic dependence is the ultimate inquiry when determining an individual’s status under the FLSA.”

The Proposed Rule provides that the correct analysis is whether the worker is dependent on the employer for continued work, not dependent on the hiring entity for income. The preamble states, “economic dependence in this context means the dependence that a typical employee has on an employer for work …. Economic dependence does not focus on the amount of income the worker earns, or whether the worker has other sources of income.”

Five distinct factors inform the “economic dependence” inquiry under the Proposed Rule. None is dispositive. However, the DOL elevates two core factors as the most reliable indicators of economic dependence and thus, employee status.

The following two “core factors” are most probative, and so carry more weight:

1. The nature and degree of control over the work. This factor weighs in favor of an independent contractor relationship when the individual controls such aspects of the work as setting work schedules and choosing assignments, works with little or no supervision, and is able to work for others. By contrast, an individual is more likely to be an employee if the employer substantially controls such aspects of the job.

   The Proposed Rule makes clear that a requirement that the individual “comply with specific legal obligations, satisfy health and safety standards, carry insurance, meet contractually agreed-upon deadlines or quality control standards, or satisfy similar terms that are typical of contractual relationships between businesses” does not signify the type of control that would characterize an individual as an employee. (The 2024 Rule had excluded from the “control” analysis only those actions required of the individual for the purpose of compliance with a specific law or regulation.)

2. The individual’s opportunity for profit or loss. This factor supports an independent contractor determination “to the extent the individual has an opportunity to earn profits or incur losses based on his or her exercise of initiative (such as managerial skill or business acumen or judgment) or management of his or her investment in or capital expenditure on, for example, helpers or equipment or material to further his or her work.”

An individual does not have to meet both the initiative and investment criteria to be deemed an independent contractor.

(A key difference between the Proposed Rule and the 2024 Rule is that an individual’s investment in equipment or facilities is one consideration under this factor, while the 2024 Rule analyzed investment as a separate factor in its six-factor test. The 2024 Rule also compared the worker’s investment to the employer’s; the Proposed Rule expressly rejected this approach.)

If both core factors above support the same conclusion as to employee versus independent contractor status, “there is a substantial likelihood that is the individual’s accurate classification,” the Proposed Rule states. The preamble explains, “these two factors in combination and pointing to the same classification are rarely going to be outweighed by the probative value of the remaining economic reality factors.” If these core factors point to different conclusions, however, the following other, less probative factors can help guide the analysis:

3. The amount of skill required for the work. To the extent the individual’s work requires skill or specialized training that the potential employer does not provide, this factor weighs in favor of independent contractor status. Where no specialized training is required beyond the training provided by the employer, this factor is more indicative of employee status. Under the Proposed Rule (unlike the 2024 Rule), the degree of initiative exercised by the individual is not relevant under this particular factor.
    
4. The degree of permanence of the working relationship between the individual and the potential employer. Where the parties’ relationship is “by design definite in duration or sporadic,” this factor supports an independent contractor finding. In contrast, a long-term relationship is more indicative of employee status. “[R]egularly occurring fixed periods of work” may be “definite” for purposes of this factor, and short-term or seasonal work does not necessarily mean an independent contractor classification. (Unlike the 2024 Rule, the Proposed Rule does not consider the exclusivity of the working relationship as part of the permanence factor.) Exclusivity is considered only as one aspect of the employer’s degree of “control” (one of the core factors).
    
5. Whether the work is part of an integrated unit of production. This factor would weigh in favor of the individual being an independent contractor when the work is “segregable from the potential employer’s production process.” The factor supports a finding of employee status “to the extent [the individual’s] work is a component of the potential employer’s integrated production process for a good or service.” (Critically, however, unlike the 2024 Rule, which addresses whether the work is an “integral part” of the business, this factor does not consider the centrality of the individual’s work to the potential employer’s principal business.)

Additional factors also may be considered only to the extent they are probative of whether the individual is in business for themself or is economically dependent on an employer. Factors that do not inform this ultimate inquiry are not relevant.

The Proposed Rule incorporates six illustrative examples from the 2021 Rule demonstrating application of the economic reality factors (updating one example) and adds two new examples addressing the “amount of skill required for the work” factor, ensuring that all of the factors include examples to help guide the analysis.

Actual Practice is Most Relevant

Under the Proposed Rule, the DOL reaffirms its position from the 2021 Rule that when evaluating an individual’s economic dependence on a potential employer, “the actual practice of the parties involved is more relevant than what may be contractually or theoretically possible.” The preamble states, “Evaluating ‘the circumstances of the whole activity’ in a work arrangement requires consideration of both actual practices and contractual rights, but the ‘reality’ of the work arrangement lies more in what actually happens than what a contract suggests may happen.”

(This is a key difference from the 2024 Rule, which provided that “reserved contractual rights” may be equally or even more indicative of the economic reality of the parties’ relationship. For example, if a potential employer retains “contractual authority to supervise or discipline an individual,” that authority may have little weight in the analysis if in practice, the potential employer does not exercise that authority. Likewise, an individual may have the “theoretical” ability to negotiate prices or work for a competitor, but this is less meaningful to the analysis if the individual is prevented from exercising these rights as a practical matter.)

This is not to say that “unexercised powers, rights, and freedoms” are irrelevant under the economic reality test, the DOL emphasized, but “merely less relevant.”

Alternatives

The DOL noted that alternative independent contractor tests had been considered, including adoption of the more restrictive “ABC” test used by many states. The DOL rejected this option, stating that the ABC test is too restrictive and incompatible with Supreme Court precedent under the FLSA.

Comment Period

The DOL invites comments on the Proposed Rule, including specific comments on:

• The impact of the 2021 Rule during the brief period when it was in effect, and how these effects inform the Proposed Rule readopting the 2021 Rule’s analysis;
   
• The positive or negative consequences of the 2024 Rule, and whether any aspects of the 2024 Rule should be retained;
   
• Whether to clarify that the control factor should be considered first, followed only if necessary by “opportunity for profit or loss,” and then the remaining factors;
   
• Experiences applying the 2021 Rule’s “integrated unit of production” analysis and the 2024 Rule’s “integral part” of the employer’s business analysis;
   
• Illustrative examples of how the economic reality factors are applied;
   
• Significant economic or labor changes since 2021 that should inform this rulemaking; and
   
• The proposal to provide a uniform standard for employee or independent contractor status under the FLSA, FMLA, and MSPA.

Takeaways

There were approximately 11.9 million independent contractors in the United States in 2023, according to the DOL. The DOL believes that number will increase under the Proposed Rule.

Once finalized, however, the rule may have limited legal impact as a practical matter. While a final rule would set the DOL’s own framework for determining who is an independent contractor under the FLSA, nearly all federal circuit courts of appeal have developed a body of case law identifying factors lower courts should use in distinguishing independent contractors from employees (which are not all consistent). While the Proposed Rule seeks to harmonize and create a uniform standard, given the absence of Chevron deference, it is not clear how much weight district courts will give to a new rule, particularly in light of DOL’s inability to articulate a consistent rule lasting beyond one administration.

One benefit, however, is the Proposed Rule specifically provides that it may be relied upon by employers under Section 10 of the Portal-to-Portal Act, 29 U.S.C. § 259. Section 10 allows employers to avoid FLSA liability if they relied upon a regulation in “good faith.” This is true even if the regulation is ultimately held invalid by a court.

Keep in mind the DOL rule will not affect how states define independent contractors under their respective employment statutes, including states with more demanding standards such as the “ABC” test. The new rule also would not redefine who an independent contractor is under the Internal Revenue Code, the National Labor Relations Act, or other federal laws beyond the FLSA, FMLA, and MSPA.

What Your Organization Can Do Now

Businesses should continue to monitor the DOL rulemaking and note the independent contractor rule currently in effect. The 2024 Rule still is in effect for purposes of private litigation over independent contractor status under the FLSA, although the DOL has ceased enforcement, and DOL field staff have been instructed to analyze employment status under the framework in a 2008 DOL fact sheet. The 2024 Rule is also the current subject of numerous legal challenges. Those lawsuits have been stayed pending the DOL’s own rulemaking.

Organizations that utilize an independent contractor model should also keep track of emerging developments in the courts and at the state level regarding independent contractors. The stakes are high — penalties for misclassification have increased in recent years, particularly at the state level.

Meanwhile, the rulemaking is a good opportunity to review your independent contractor arrangements as part of a broader audit of wage and hour practices.

If you have questions about the DOL’s Proposed Rule or need confidential guidance on how to lawfully retain independent contractors, please contact your Jackson Lewis attorney.