On February 27, 2026, the Department of Labor’s Wage and Hour Division issued a proposed rule to update the independent contractor rule and to rescind the previous administration’s rule.  The definition of an independent contractor has been long argued since the Fair Labor Standards Act (FLSA) was first passed in the 1930s.  The courts found that the FLSA never defined an independent contractor (IC) and as a result, a variety of court and federal administrative definitions have been pushed over the years. 

The Biden-era rule promulgated in 2024 established a six-factor test for determining worker status. The six factors, which are non-exhaustive, include:

• the worker's opportunity for profit or loss;
• investments made by the worker and the potential employer;
• the degree of permanence of the work relationship;
• the degree of control an employer has over the work;
• the extent to which work performed is integral to the employer's business; and
• the use of a worker's skill and initiative.  

The rule, per many, was considered overbroad, difficult to implement, and essentially recast most independent contractors as employees. The Trump DOL rescinded this rule in in a spring 2025 rulemaking agenda.

Why is the independent contactor (IC) rule important?  It’s all about tax revenues.  If the IC is now an employee, payroll taxes will be paid and there is less flexibility for reduced income reporting.  The issue of the IC was really brought forth during the Reagan administration, which tried to close loopholes for tax purposes.  But also, by recasting the IC as an employee, they will also have access to benefits such as employer provided healthcare as well as retirement and disability benefits. 

According to the preamble to the current proposed rule, it reiterates the issues of the 2024 rule.  Specifically, it states that the “2024 Rule failed to facilitate proper classification of workers. Instead, the Department believes that the vagueness of the 2024 Rule, and its lack of predictable application, pressured businesses to unnecessarily classify bona fide independent contractors as employees.”  

The new rule will define an employee using economic dependence on the employer/contracting organization focusing on two factors: control and opportunity for profit.  In particular, the rule preamble states:

“two primary, or ‘core’ economic reality factors described in § 795.105(d)(1)—namely, the control and opportunity for profit or loss factors—are the most probative of whether an individual is an economically dependent ‘employee,’ and that these two core factors will typically carry greater weight in the analysis than any other factor. Thus, these two factors should be considered first, and if both point toward the same classification (either employee or independent contractor), there is a substantial likelihood that is the accurate classification for the individual. The Department is also proposing that the three additional economic dependence, or economic reality, factors described in § 795.105(d)(2)—skill, permanence, and whether the work is part of an integrated unit of production—serve as additional guideposts but are less probative in the analysis (and, in some cases, may not be probative at all).”

The DOL Wage and Hour Division Administrator Andrew Rogers stated in interviews that the proposed rule will provide “regulations that allow workers and businesses to more faithfully, clearly, and predictably arrange their business relationships in ways that align to federal courts' application of the law would be helpful for both workers and businesses navigating modern work arrangements.”  

Although labor is estimated to be up to 30% of an organization’s cost, critics of the rule are arguing that rescinding the rule would open the door to workers being stripped of basic legal protections. However, the DOL’s rule will not be definitive, but influencing.  There are other interpretations for determining an IC from the IRS to the courts to other agencies.

The proposed rule would also apply to the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act. A 60-day public comment period begins Friday and ends on April 28. DOL would then need to adopt a final rule.

Source: Law360 2/26/26, Reuters 2/26/26, HR Dive 2/26/26