On February 26, 2026, the U.S. Department of Labor (DOL) issued a Notice of Proposed Rulemaking that would revise the standards for determining independent contractor vs. employee status under the Fair Labor Standards Act (FLSA). The proposal would rescind the Biden administration’s 2024 independent contractor rule and replace it with a framework largely modeled on the DOL’s 2021 rule, which emphasized a more streamlined “economic reality” analysis.
Background
The proposed rule represents the latest development in a series of regulatory shifts concerning independent contractor classification. The 2024 rule under President Biden adopted a broad, unweighted “totality of the circumstances” test, which the DOL now asserts created uncertainty for employers and workers. The current proposal seeks to return to an approach that, according to the DOL, aligns more closely with longstanding federal court precedent and prior agency guidance. It is similar to the 2021 independent contractor rule from the first Trump administration, which itself replaced a less business-friendly approach under the Obama administration.
If finalized, the new rule would apply not only to the FLSA, but also to the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSAWPA), which incorporate the FLSA’s definitions of employment.
Key Features of the Proposed Rule
Under the proposal, worker classification would be evaluated using an “economic reality” test focused on whether a worker is economically dependent on a potential employer or is operating an independent business. The analysis centers on two “core factors” that would carry greater weight than other considerations:
- The nature and degree of control over the work, and
- The worker’s opportunity for profit or loss based on initiative and/or investment.
Where these core factors do not point clearly toward classification of the individual either as an employee or an independent contractor, the DOL would also consider additional factors including the amount of skill required for the work, the degree of permanence of the working relationship, and whether the work is part of an integrated unit of production. The proposed rule further emphasizes that the parties’ actual practices—rather than contractual labels or theoretical rights—are most relevant to the analysis.
Next Steps
The proposed rule was published in the Federal Register on February 27, 2026, and the DOL is accepting public comments through April 28, 2026. In the meantime, employers that rely on independent contractors should monitor developments closely and evaluate how the proposed changes could affect their current classification practices. Employers should also be mindful that the proposed rule applies only to classification under federal law, and some states (such as California and New Jersey) have adopted their own requirements and standards for determining worker classification with which employers operating in those states still need to comply.
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