DOL Proposed Rule On Independent Contractors

Key Takeaways

• The Department of Labor ("DOL") proposed to rescind the Biden-era 2024 independent contractor rule and replace it with a modified version of the Trump-era 2021 framework.
• The proposed rule moves away from the 2024 rule's open-ended, six-factor "totality-of-the-circumstances test," which treated all factors as equally weighted. Instead, it reinstates control and opportunity for profit or loss as "core" factors in assessing employee status.
• For the first time, the DOL would apply a uniform employee/independent contractor analysis across the Fair Labor Standards Act ("FLSA"), Family and Medical Leave Act ("FMLA"), and Migrant and Seasonal Agricultural Worker Protection Act ("MSPA").
• The proposed rule would not preempt stricter state-law standards or eliminate misclassification risk.

On February 26, 2026, the U.S. Department of Labor ("DOL") published a Notice of Proposed Rulemaking ("NPRM") that would rescind the Biden Administration's 2024 independent contractor rule and replace it with a modified version of the Trump Administration's 2021 rule. For the first time, the DOL also proposes to expressly extend this analytical framework to the FMLA and the MSPA.

If finalized, the proposed rule would depart from the six-factor, "totality of the circumstances" approach adopted in 2024, focusing instead on two main factors—control and opportunity for profit or loss—as the most probative indicators of independent contractor status.

Overview of the Proposed Rule

At its core, the proposed rule would retain the familiar "economic reality" test for employee status under the FLSA. The ultimate inquiry is whether the worker is economically dependent on the putative employer, and thus an employee, or "in business for" themselves, and thus an independent contractor.

To guide that inquiry, the proposed rule adopts a five-factor framework, divided into "core" and "other" factors.

• Two core factors, which are described as most probative and typically entitled to greater weight:
  1. The nature and degree of the worker's control over the work; and
  2. The worker's opportunity for profit or loss based on initiative and/or investment.

• Three additional factors, which serve as secondary guideposts:
  1. The amount of skill required for the work;
  2. The degree of permanence of the working relationship; and
  3. Whether the work is part of an integrated unit of production.

While no single factor is dispositive, the DOL states that where two core factors both point in the same direction, there is a "substantial likelihood" that they reflect the worker's proper classification. The proposed rule also reiterates that the analysis must focus on the parties' actual practices, rather than contractual labels or theoretical rights that are not exercised in practice.

The NPRM further includes detailed regulatory examples illustrating how the factors would be applied in common factual scenarios, and clarifies that certain requirements, such as compliance with legal obligations, safety standards or quality controls typical of business-to-business relationships, do not, by themselves, indicate employee status.

Key Differences from the 2024 Rule

The proposed rule would differ from the 2024 independent contractor rule finalized under the Biden Administration in several respects. Most notably, the 2024 rule adopted a six-factor test in which all factors were weighed equally under a holistic "totality of the circumstances" approach. That rule rejected the concept of "core" or primary factors and emphasized that no factor or subset of the factors should be given predetermined weight.

By contrast, the proposed rule restores a hierarchical structure to the analysis, explicitly prioritizing control and opportunity for profit or loss. The DOL criticizes the 2024 rule as unclear and ambiguous, arguing that its open-ended balancing test created uncertainty for businesses and workers and risked discouraging legitimate independent contractor arrangements.

The proposed rule also narrows certain concepts that were expanded in the 2024 rule. For example, it moves away from the 2024 rule's focus on whether work is "integral" or "central" to the employer's business, instead asking whether the worker's own investment supports an independent business.

Finally, the NPRM would harmonize the analysis across the FLSA, FMLA, and MSPA by incorporating cross-references to the same framework in each statute's regulations. The DOL previously declined to address this issue in both the 2021 and 2024 rulemakings.

What This Means for Employers

If finalized, the proposed rule may provide greater clarity and predictability than the 2024 rule, particularly for businesses that rely on independent contractors at scale or in specialized roles. Businesses may find that the two "core" factors—the degree of control over the work and the worker's opportunity for profit and loss—align with how worker relationships are structured and evaluated in practice.

At the same time, the proposed rule does not eliminate misclassification risk, nor does it displace more restrictive state-law standards. It does not create bright-line standards or safe harbors, so classification determinations will remain fact-intensive. Employers should also expect continued scrutiny of contractor relationships, particularly during the pendency of the rulemaking and any subsequent litigation challenging the final rule.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.