Department of Labor Proposes New Independent Contractor Rule

Written by David Szwarcsztejn and Danny R. Levandoski From Michael Best & Friedrich LLP on March 9, 2026

On February 27, 2026, the U.S. Department of Labor (“DOL”) published a Notice of Proposed Rulemaking (“NPRM”) that would rescind the 2024 Independent Contractor Rule and largely reinstate the 2021 framework for determining whether a worker is an employee or an independent contractor under federal law.[1] The proposed rule change stands to impact businesses in all industry sectors as the proliferation of the “gig economy” and flexible freelance work models have grown in popularity and practice across the nation. This shift in the labor marketplace has generated increased scrutiny—and litigation—over the question of when an enterprise may classify a worker as an independent contractor.

If finalized, the new rule would reestablish the former five-factor “economic reality” test with two key changes. First, the proposed rule would place greater emphasis on two core factors, namely, (1) the nature and degree of the worker’s control over their work, and (2) the worker’s opportunity for profit or loss. The proposed rule also seeks to have the clarified test serve as a single, uniform standard for purposes of the Fair Labor Standards Act (“FLSA”), the Family and Medical Leave Act (“FMLA”), and the Migrant and Seasonal Agricultural Worker Protection Act (“MSPA).

The proposed rule is not yet final, and public comments are due on April 28, 2026.

The Current Rule

Worker classification under federal wage and hour law has been the subject of frequent regulatory changes. In 2024, the DOL adopted a six factor “totality of the circumstances” test without assigning relative weight to any factor.[2] The Department now concludes that the 2024 approach created uncertainty, discouraged legitimate independent contractor relationships, and produced unpredictable outcomes.

The current proposal would reverse course and return to a more structured analysis based on longstanding Supreme Court precedent.[3]

The Proposed Rule

The proposed rule articulates a clarified “economic dependence” that examines whether, as a matter of economic reality, a worker is either: economically dependent on the business for work (an “employee”) or in business for themself (an “independent contractor”). The Department emphasizes that economic dependence is not measured by the amount of income earned, and that a worker may have multiple sources of income and still be an employee if they are economically dependent on a particular business for work.

The DOL identifies the following five factors that inform this “economic dependence” analysis, with the first two factors emphasized as “core factors” to determine whether a worker is an employee or independent contractor:

1. Nature and Degree of Control
   • This factor examines who controls the key aspects of the work, including scheduling and workload, selection of projects, and the ability to work for others (including competitors). Additionally, the proposed rule clarifies that certain requirements do not constitute employment-type control, including compliance with legal or regulatory obligations, health and safety standards, insurance requirements, and contractual deadlines or quality standards typical of business-to-business relationships.
2. Opportunity for Profit or Loss
   • This factor looks to whether the worker can earn profits or incur losses based on their managerial skill or business judgment, initiative, or investment in equipment, helpers, or materials. The worker’s opportunity, not whether they work more hours or more quickly, is the focus.
3. Skill Required
   • This factor examines whether the worker brings specialized skills to the work. The proposed rule renders this a less probative factor and emphasizes that skill alone, even if highly specialized, does not indicate independent‑contractor status unless it is paired with business‑like initiative.
4. Permanence of the Relationship
   • This factor considers whether the relationship is continuous or indefinite (pointing toward employee status) or project‑based or sporadic, which may support independent‑contractor status. However, its probative value is limited because some industries naturally rely on short‑term or seasonal work that does not necessarily reflect true independence.
5. Integration into Production
   • This factor evaluates whether the work performed is part of an integrated production process rather than merely important to the business, with closer integration indicating employee status. Still, the proposed rule treats this factor as less influential because integration varies widely by industry and does not reliably indicate economic dependence on its own.

The proposal reaffirms that actual practice outweighs contractual language. Theoretical rights (e.g., the right to work for others or negotiate rates) carry little weight if, in reality, the worker cannot exercise them. Conversely, unused contractual rights to control may be less relevant if never exercised.

Additionally, unlike the 2024 rule, the proposed rule would extend this same classification framework to the FMLA and the MSPA. This change is intended to eliminate inconsistent standards across statutes that share the same definition of “employ.”

Bottom Line

If finalized, the proposed rule should have welcomed implications for employers, including: (1) increased predictability in federal classification decisions; (2) reduced pressure to classify bona fide contractors as employees solely to mitigate legal risk; (3) lower litigation exposure where workers exercise meaningful control and have real profit-and-loss opportunities; and (4) renewed attention to day-to-day practices, not just contract drafting.

Employers should note that this proposed rule is not yet effective. The Department is currently accepting comments from stakeholders who wish to weigh in on the proposed rule. If your organization is interested in submitting a comment on the proposed rule, be sure to submit your comments before the April 28 deadline.

Additionally, employers should be aware that even if the proposed rule is adopted and finalized, many states, including California[4], Illinois[5], Massachusetts[6], and New Jersey[7], have more stringent standards for independent contractor status (with numerous significant industry carve-outs and exceptions). We encourage you to double-check the governing standard in your local jurisdiction to ensure compliance with both federal and state worker classification regulations.