DOL Proposes to Replace the 2024 Independent Contractor Rule

The US Department of Labor’s Wage and Hour Division on February 26 issued a notice of proposed rulemaking that would rescind the 2024 independent contractor rule and replace it with a revised framework modeled largely on the January 2021 rule. Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act, Notice of Proposed Rulemaking, at 1, 91 Fed. Reg. 9932, RIN 1235–AA34 (Feb. 27, 2026). For employers that use contractor, freelance, platform-based, commission, referral-network, or other nontraditional labor models, the proposal signals a more streamlined and arguably more administrable federal standard than the Biden administration’s 2024 rule. See US Dep’t of Labor, U.S. Department of Labor Proposes Rule Clarifying Employee, Independent Contractor Status Under Federal Wage and Hour Laws (Feb. 26, 2026); Littler, U.S. Department of Labor Proposes New(ish) Worker-Classification Standards (Feb. 26, 2026). The proposal is just that—a proposal, not a final rule—and comments are due by April 28, 2026.

If finalized substantially as proposed, the rule would mark a significant shift in federal worker-classification analysis under the Fair Labor Standards Act (FLSA) and would extend the same general framework to the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). NPRM at 1, 44-45, 90-92 (proposing to apply the analysis to the FMLA and MSPA and to revise 29 CFR §500.20(h)(4), §825.102, and §825.105(a)).

For employers that use contractor, freelance, platform-based, commission, referral-network, or other nontraditional labor models, the proposal signals a more streamlined and arguably more administrable federal standard than the Biden administration’s 2024 rule.

What the DOL Proposed

The proposal would rescind the current analysis in 29 CFR part 795 and readopt the 2021 rule’s general structure, with certain modifications. NPRM at 1, 43–46.

The DOL would continue to frame the inquiry as one of “economic reality,” that is, whether the worker is in business for themself or is economically dependent on the putative employer for work. NPRM at 46; see also US Dep’t of Labor, Fact Sheet No. 13, Employment Relationship Under the Fair Labor Standards Act (FLSA) (rev. March 2024) (explaining that the inquiry turns on whether, as a matter of economic reality, the worker is economically dependent on the employer or instead in business for themself). But unlike the 2024 rule, which used a six-factor totality-of-the-circumstances analysis with no predetermined weighting, the new proposal would again elevate two “core factors":

• the nature and degree of control over the work; and
• the worker’s opportunity for profit or loss based on initiative and/or investment. US Dep’t of Labor, U.S. Department of Labor Proposes Rule Clarifying Employee, Independent Contractor Status Under Federal Wage and Hour Laws (Feb. 26, 2026); NPRM at 51, 67–69.

Other factors would remain relevant, including the amount of skill required, the degree of permanence of the relationship, and whether the work is part of an integrated unit of production. NPRM at 86–89 (examples section), 46–47, 86–87. The proposal also reiterates that, in applying the test, actual practice matters more than what is merely contractual or theoretically possible. NPRM at 18, 82–85, 139. In addition, the DOL proposes to readopt the examples section from the 2021 rule, update one example, and add two new examples addressing the skill factor. NPRM at 44, 86–89.

The DOL is also soliciting comment on an even more streamlined alternative under which the control factor would be considered first and, if that factor alone indicates employee status, the inquiry would stop there. NPRM at 59. Although the agency has not proposed that approach as its principal rule text, its inclusion in the NPRM underscores the department’s broader effort to simplify and narrow the federal classification analysis.

How the Proposal Differs from the 2024 Rule

The 2024 rule, which became effective on March 11, 2024, restored a broader six-factor economic-realities analysis and expressly stated that no factor or set of factors had predetermined weight. US Dep’t of Labor, US Department of Labor Announces Final Rule on Classifying Workers as Employees or Independent Contractors Under the Fair Labor Standards Act (Jan. 9, 2024); US Dep’t of Labor, Frequently Asked Questions—Final Rule: Employee or Independent Contractor Classification Under the FLSA (stating that the 2024 rule uses six factors and that no factor or set of factors has predetermined weight).

It also emphasized that the FLSA inquiry is broader than common-law control concepts and that all facts bearing on economic dependence should be evaluated under the totality of the circumstances. US Dep’t of Labor, Fact Sheet No. 13, Employment Relationship Under the Fair Labor Standards Act (FLSA).

The proposed replacement would move in a different direction. In substance, it would re-center the inquiry on control and entrepreneurial opportunity, treat other factors as generally secondary, fold investment into the profit-or-loss inquiry, and restore the 2021 rule’s view that actual practice should carry more significance than unexercised contractual rights or theoretical possibilities. NPRM at 67–69, 82–85; see also US Dep’t of Labor, Frequently Asked Questions—Final Rule: Employee or Independent Contractor Classification Under the FLSA (describing differences between the 2024 rule and the 2021 rule). Professional commentary from management-side law firms has already characterized the proposal as a return to a more predictable and simplified federal standard. Littler, U.S. Department of Labor Proposes New(ish) Worker-Classification Standards (Feb. 26, 2026) (describing the proposal as focusing on two main factors and generally simplifying the analysis); Sullivan & Cromwell LLP, DOL Declines to Enforce Biden-Era Independent Contractor Rule (May 6, 2025).

Current Status: The 2024 Rule Remains on the Books for Now

Employers should not mistake the proposal for an immediately effective change in law. Until a final rule is adopted, the 2024 rule remains the operative regulation in the Code of Federal Regulations. US Dep’t of Labor, Misclassification of Employees as Independent Contractors; US Dep’t of Labor, Fact Sheet No. 13, Employment Relationship Under the Fair Labor Standards Act (FLSA) (rev. March 2024). At the same time, however, the DOL has already altered its enforcement posture. In May 2025, the Wage and Hour Division announced in Field Assistance Bulletin No. 2025-1 that it would no longer apply the 2024 rule’s analysis in FLSA investigations, and would instead enforce the FLSA using the 2008 version of Fact Sheet No. 13, informed by reinstated Opinion Letter FLSA2019-6. US Dep’t of Labor, Field Assistance Bulletin No. 2025-1, FLSA Independent Contractor Misclassification Enforcement Guidance (May 1, 2025). The same bulletin expressly stated that the 2024 rule nevertheless remains in effect for purposes of private litigation.

Accordingly, employers currently face a split landscape: the DOL’s enforcement personnel are already using a more employer-favorable framework, while private plaintiffs may still invoke the 2024 regulation in court until the rule is formally rescinded or judicially displaced. That gap between enforcement and litigation posture is one of the most practically important features of the current environment. See Field Assistance Bulletin No. 2025-1; Sullivan & Cromwell LLP, DOL Declines to Enforce Biden-Era Independent Contractor Rule (May 6, 2025).

Why This Matters

Worker classification remains one of the most consequential threshold questions under federal wage-and-hour law. Employees are entitled to FLSA protections such as minimum wage and overtime; independent contractors are not. 29 USC §206–§207; US Dep’t of Labor, Wages and the Fair Labor Standards Act (FLSA); US Dep’t of Labor, Fact Sheet No. 13, Employment Relationship Under the Fair Labor Standards Act (FLSA).

The issue is not marginal. According to the Bureau of Labor Statistics, in July 2023 there were 11.9 million independent contractors on their sole or main job, representing 7.4% of total employment. Bureau of Labor Statistics, Contingent and Alternative Employment Arrangements—July 2023 (Nov. 8, 2024).

The stakes are not merely economic but conceptual. As the DOL’s proposal itself reflects, the agency views the “economic reality” test as rooted in US Supreme Court precedent emphasizing the “circumstances of the whole activity” rather than technical labels. NPRM at 6–8, 51–52, 125 (discussing United States v. Silk, 331 U.S. 704 (1947); Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947); and Goldberg v. Whitaker House Cooperative, Inc., 366 U.S. 28 (1961)).

At the same time, scholarly commentary continues to debate whether the contractor/employee line is best understood through dependency, control, investment, market structure, or some combination of those ideas. Eric A. Posner, The Economic Basis of the Independent Contractor/Employee Distinction, 100 Tex. L. Rev. 353 (2021); Lance H. Delrie, “Economic Reality” —A Perpetual State of Confusion, La. L. Rev. (Mar. 21, 2024).

That continuing debate helps explain why federal administrations keep returning to the subject—and why classification doctrine has remained unstable.

Practical Takeaways for Employers

For employers that use independent contractors, the proposal is an appropriate occasion to revisit classification strategy and documentation, particularly with respect to the factors the DOL now appears poised to prioritize. Among other things, employers should consider reviewing:

• The degree of operational control over when, where, and how work is performed;
• Whether workers can meaningfully negotiate pricing, accept or reject assignments, market services to others, or perform work for multiple clients;
• Whether the worker bears meaningful entrepreneurial risk or has made business-like investments;whether existing agreements accurately reflect actual practice; and
• Whether the organization’s state-law exposure differs materially from its federal position. US Dep’t of Labor, U.S. Department of Labor Proposes Rule Clarifying Employee, Independent Contractor Status Under Federal Wage and Hour Laws (Feb. 26, 2026); NPRM at 59, 67–69, 82–85; Fact Sheet No. 13.

The last point is especially important. Even if the federal rule becomes more employer-friendly, state law will continue to matter, and the FLSA does not preempt more protective state standards. Thus, a federal classification position that is defensible under a revised DOL rule may still present risk under state wage-and-hour, unemployment, workers’ compensation, or other employment statutes.

Bottom Line

The DOL’s proposal is a significant deregulatory move, but it is not yet the governing rule. For now, employers should assume that the 2024 regulation remains relevant in litigation, that DOL enforcement is already operating under different guidance, and that state law may remain stricter than whatever federal standard ultimately emerges. Businesses that rely on contractor models should consider both whether to submit comments in the rulemaking and whether to undertake a targeted classification review before the federal framework changes again.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Samuel Krause is a partner at Hall Benefits Law.

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