If your business utilizes independent contractors, you should be paying attention to a significant regulatory shift in progress at the federal level. On February 26, 2026, the U.S. Department of Labor (DOL) announced a proposed rule that, if it takes effect, would dramatically change how workers are classified under federal wage and hour law.
What’s Happening?
The DOL issues regulatory rules to help determine whether a worker is properly classified as either an employee or an independent contractor. Properly classifying a worker is crucial because certain federal statutes apply to employees but not independent contractors. For example, the Fair Labor Standards Act, the federal law that mandates payment of minimum wage and overtime compensation to non-exempt employees, does not apply to independent contractors. If a worker is found to be misclassified, they can be entitled to recovery of back wages for any unpaid minimum wage and/or overtime, plus an additional amount of liquidated damages, lost benefits, and reasonable attorneys’ fees and costs. Simply put, misclassifying workers can lead to staggering liability for businesses.
The DOL is proposing to rescind an employee-friendly final rule for evaluating independent contractor classification that took effect in March 2024 and replace it with a framework that resembles what was in place during the first Trump administration. The 2024 final rule made it considerably harder to classify workers as independent contractors by requiring businesses to weigh six equal factors in determining whether someone was “economically dependent” on a business. The proposed rule would instead restore a “core factor” analysis that gives employers more clarity and breathing room.
How the Tests Differ
Under the current 2024 final rule, businesses must evaluate six factors with no single factor carrying more weight than the others: opportunity for profit or loss, investments by both worker and employer, permanence of the relationship, degree of control, whether the work is integral to the business, and the worker’s skill and initiative. This balancing act leaves considerable room for uncertainty and second-guessing as to how a court might weigh the factors.
The newly proposed rule streamlines the analysis by identifying two “core” factors that matter most: the nature and degree of control over the work, and the worker’s opportunity for profit or loss. If both core factors point in the same direction, there’s a “substantial likelihood” that the worker classification is correct. Three additional factors—skill required, permanence of the relationship, and whether the work is part of an integrated unit of production—serve as guideposts but carry less weight.
Importantly, the proposed rule clarifies that requiring workers to comply with legal obligations, health and safety standards, insurance requirements, or quality control standards doesn’t automatically signal an employment relationship. This would be a welcome change for businesses that need contractors to maintain certain standards without worrying about triggering employment status.
What This Means for Your Business
If finalized, the new proposed rule will likely make it easier to maintain legitimate independent contractor relationships and should substantially decrease the risk of misclassification at the DOL level. However, keep in mind that courts are not bound by DOL rules, so litigation risk remains, and state laws, some of which are much stricter than federal standards, still apply.
The proposed rule also extends this framework to the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act, creating uniform classification standards across multiple federal statutes.
Next Steps
The public comment period closes April 28, 2026, and the proposed rule could be finalized later this year. This is the right time to work with experienced employment counsel to review your independent contractor relationships and ensure your agreements, policies, and practices align with the likely new standard. If you have any questions or would like to ensure your workplace agreements and rules strike the right balance, please contact one of our employment attorneys to discuss a review and, if needed, an update of your contractor agreements to align with the new regulatory guidance, ensure consistency, and mitigate risk without sacrificing operational needs.
Do you rely on independent contractors? A proposed federal rollback could significantly change how workers are classified under wage-and-hour law. We break down what’s changing, what’s staying the same, and how to protect your business.
