DOL Proposes Rule That Could Expand When Workers Qualify as Independent Contractors

The U.S. Department of Labor (DOL) proposed a rule that would change how worker classification as an independent contractor is analyzed under federal wage and hour and other laws. If finalized, the proposal would rescind the DOL’s 2024 independent contractor rule and replace it with an approach that largely mirrors the 2021 framework, with several targeted refinements. 

The proposed rule returns to the rule DOL adopted in 2021 under the prior Trump administration. It would make it easier for a worker to qualify as an independent contractor rather than an employee. Following a public comment period that closes April 28, 2026, the rule could be finalized later this year.

The proposal has meaningful implications for employers that rely on independent contractors, particularly in industries such as construction, transportation, logistics, health care, agriculture, technology platforms and professional services. Here’s what employers need to know.

The Proposed Rule

The proposed rule keeps the longstanding “economic reality” test used by courts to determine whether a worker is an employee who is economically dependent on the employer or an independent contractor. However, it changes how that test is applied. 

Rather than treating all factors equally under an open‑ended “totality of the circumstances” approach — as the 2024 rule did — the proposal elevates two factors above all others and gives employers clearer direction on how to weigh competing considerations. 

Under the proposal, the two “core” factors are considered first and given greater weight. The first core factor is the nature and degree of control over the work, and the second is the worker’s opportunity for profit or loss based on initiative or investment.

1. Nature and degree of control over the work

The first factor looks at who actually controls the key aspects of the work, including scheduling, project selection, workload, and the ability to work for others, including competitors. Unlike the current rule, the proposal provides that certain common contractual requirements, like compliance with legal, regulatory, health and safety, insurance, or contractual obligations or standards, do not signify control.

2. Worker’s opportunity for profit or loss based on initiative or investment

The second factor focuses on whether the worker can increase or decrease earnings through managerial skill or business judgment, business initiative, or investment in tools, equipment, helpers or materials, with the focus on entrepreneurial decision‑making, not just effort. 

If both core factors point in the same direction, the DOL states there is a strong likelihood that the classification is correct. Other “secondary factors” — including the skill required, the permanence of the relationship, the level of integration, and whether the workers are economically dependent — are supporting considerations but given less weight. 

Further, the proposal has renewed emphasis on what happens in actual practice, not just what the contract allows. 

Application Across Federal Statutes

The proposed rule is designed to create one uniform federal standard for employee versus independent contractor determinations across statutes. Accordingly, it would apply to the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

Key Employer Takeaways

Comment remains open on the proposed rule until April 28. If finalized, the proposed rule would:

• • Return to a primary focus on the two core factors — the nature and degree of control and workers’ opportunity for profit or loss based on initiative and investment — looking to remaining factors only as additional potential guideposts
  • Reduce the relevance of contractual possibility and return to a focus on what happens in reality
  • Likely reduce DOL enforcement risk for businesses using bona fide independent contractors

• • Likely make independent contractor relationships easier to defend at the agency level

While the proposed rule is likely to provide greater business certainty regarding worker classification, courts will not be bound by it, state laws will not be affected, and misclassification claims are likely to continue to receive close scrutiny by courts and state agencies.

Looking forward, employers that work with independent contractors should begin to consider preparing for changes likely later this year by:

• • Re‑evaluating current classifications using the proposed core‑factor framework 

• • Reviewing whether actual practices match contractual language

• • Identifying relationships where control or profit opportunity may be ambiguous

If you have questions or need advice or guidance, please contact Sarah Smith-Clevenger or any member of the Phelps Labor and Employment team.