DOL proposes major changes to independent contractor classification rules

On February 26, the U.S. Department of Labor (DOL) published a proposed rule that would fundamentally reshape how employers determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA) and related federal laws. The proposed rule would rescind a 2024 Biden-era final rule and replace it with an analysis similar to the one adopted by the DOL in 2021, with a few modifications.

‘Economic reality’ test reaffirmed

According to the DOL, the proposed rule is designed to help workers and employers “better understand how to determine when a worker is an employee and when the worker may be classified as an independent contractor” under federal wage and hour laws.

The proposed rule reaffirms the long-standing “economic reality” test to determine whether a worker is an employee or an independent contractor. The ultimate inquiry is whether, as a matter of economic reality, the worker is economically dependent on the employer for work (employee) or is in business for him or herself (independent contractor).

Two ‘core’ factors, three ‘additional guideposts’

One of the most significant features of the proposed rule is its identification of two “core” factors that are the most probative of whether a worker is economically dependent on an employer: (1) the nature and degree of control over the work; and (2) the worker’s opportunity for profit or loss.