On Feb. 26, 2026, the U.S. Department of Labor (DOL) announced plans to rescind the 2024 Biden-era independent contractor rule and largely adopt a rule that was announced near the end of President Donald Trump’s first term. If adopted, the DOL will abandon the current six-factor totality-of-the-circumstances analysis in favor of a revised “economic reality test” that focuses on: (1) the nature and degree of control over the work; and (2) the workers’ opportunity for profit or loss based on initiative and/or investment.
The DOL published the proposed rule in the Federal Register for comment. Interested parties have until April 28, 2026, to submit comments on the new rule. The proposed rule will likely take effect later in the year.
Why This Matters
Misclassifying workers as “independent contractors” instead of “employees” presents significant risk for businesses. Unlike independent contractors, employees are entitled to minimum wage, overtime pay and recordkeeping protections under the Fair Labor Standards Act (FLSA). Employees are also subject to payroll taxes, may be eligible for statutory benefits and may also be entitled to protections governed by civil rights laws, the National Labor Relations Act and other laws. Thus, improperly classifying a worker as an independent contractor instead of an employee can expose businesses to litigation (including class action lawsuits) and civil penalties.
The Existing Rule
The DOL is walking away from the 2024 Biden-era rule, which narrowed the statutory definition of independent contractors and which critics argued left unclear whether a given worker should be classified as an independent contractor. The 2024 rule identifies six non-exhaustive factors that employers, regulators and courts need to consider on a case-by-case basis: (1) opportunity for profit or loss depending on managerial skill, (2) investments by the worker and the potential employer, (3) degree of permanence of the work relationship, (4) nature and degree of control, (5) extent to which the work performed is an integral part of the potential employer’s business, and (6) skill and initiative.
Under the existing rule, no single factor is dispositive, and the appropriate weight for each factor is case-specific.
The Proposed Rule
The proposed rule would adopt a five-factor test — (1) nature and degree of control over the work, (2) the worker’s opportunity for profit or loss, (3) the amount of skill required for the work, (4) the degree of permanence of the working relationship between the worker and the potential employer, and (5) whether the work is part of an integrated unit of production. But unlike the 2024 rule, the proposed rule expressly prioritizes the first two factors as having the greatest weight.
While the proposed rule acknowledges that additional factors “may be relevant,” it clarifies that they are only relevant “if the factors in some way indicate whether the individual is in business for him- or herself, as opposed to being economically dependent on the potential employer for work.” Accordingly, if the proposed rule is adopted, the DOL will take the position that considerations such as the employer’s size and whether the worker has alternate sources of income are not relevant to the independent contractor analysis.
Lastly, the proposed rule harmonizes the standard for determining independent contractor status under the FLSA with the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). Under the proposed rule, a worker who qualifies as an independent contractor under the FLSA likewise qualifies as an independent contractor under the FMLA and MSPA.
What Happens Now?
Although the proposed rule is not yet in effect, the DOL stopped enforcing the 2024 rule shortly after Trump took office last year. Private parties, however, may still rely on the 2024 rule in private litigation until the proposed rule takes effect.
For questions about how this DOL rulemaking impacts an organization’s independent contractor classification decisions, contact the authors, your McGuireWoods contact, or a member of the firm’s Employment Litigation and Wage & Hour / Collective Class Action Practice Groups.