DOL Proposes Overhaul of Independent Contractor Rule

The U.S. Department of Labor (DOL) on Thursday, Feb. 26, issued a proposed rule that aims to update guidelines for determining worker classification under federal laws such as the Fair Labor Standards Act (FLSA). If approved, the rule would formally rescind the Biden administration’s 2024 independent contractor rule and replace it with a framework that resembles one adopted by the DOL in 2021 during the first Trump administration.

The 2024 rule, in general, made it harder for workers to be classified as independent contractors. In May 2025, the DOL shifted its enforcement efforts to a broader standard that generally favors more flexibility for businesses.

The agency emphasized that the proposed rule is designed to more clearly differentiate independent contractors from employees for the purpose of protections under the FLSA, as well as the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), both of which incorporate the FLSA’s employment scope.

“The department’s proposed rule seeks to protect [independent contractors’] entrepreneurial spirit and simplify compliance for American job creators navigating a modern workplace, all while maintaining robust protections for employees under the Fair Labor Standards Act,” said Secretary of Labor Lori Chavez-DeRemer in a statement posted on the DOL website.

Andrew Rogers, the administrator of the DOL’s Wage and Hour Division, added: “The rule we are proposing today is not only based on longstanding legal principles used in federal courts across the country but also is aimed at ensuring that workers and employers know how to apply those principles predictably. The department believes that streamlined regulations in line with Congress’ intent when it passed the Fair Labor Standards Act would improve compliance, reduce misclassification and reduce costly litigation in an economic environment that needs flexibility and innovation.”

The 146-page DOL proposal document is scheduled to be published in the Federal Register on Friday, Feb. 27. (Once published, you can view and download that version via this link.) A 60-day public comment period will follow. After April 28, the DOL would then need to adopt a final rule.

An Analysis Test to Clarify Classification

The DOL’s proposed rule includes an analysis tool to help employers and workers understand the basis of the work relationship and determine whether the worker should be classified as an employee or independent contractor. The analysis:

• Applies an “economic reality test” to determine whether the worker is in business for themselves as an independent contractor or is an employee economically dependent on an employer for work.
• Identifies and explains two “core factors” to help determine if the worker is economically dependent on an employer for work or in business for themselves. Those factors are:
  • The nature and degree of control over the work.
  • The worker’s opportunity for profit or loss based on initiative and/or investment.
• Identifies other factors to help determine the worker’s status, 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.
• Advises that the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
• Provides eight fact-specific examples applying the factors to real-life circumstances.

The DOL document also spells out the potential benefits of the rule, if finalized.

• For businesses: “The department believes that the improved clarity offered by the rule would increase the efficiency of the labor market, allowing businesses to be more productive and decreasing their litigation burden.
• For workers: “Broadly speaking, this rule would likely have three categories of potential effects. First, this rulemaking would make it easier for the millions of individuals who currently work as independent contractors and those who hire them to comply with the law. Compliance cost savings would be shared between the independent contractors and businesses for which they work. Second, legal clarity may encourage firms to create independent contractor arrangements for roles that did not previously exist, which may attract workers who otherwise would not work in that field. Such job creation would benefit workers and firms alike. Third, as a result of the improved clarity of the proposed rule, businesses might convert some existing positions from employee status to independent contractor status. [Also,] the department expects that this proposed rule could reduce any ‘voluntary’ employment classification. This refers to situations where businesses classify workers who may be in business for themselves (and thus independent contractors) as employees to avoid legal risk (in the event that the business does not satisfy the FLSA’s guidance on employee and independent contractor status).”

Editor’s Note: Additional Content

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