DOL Issues Proposed Rule on Worker Classification

The U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD) published a proposed rule concerning the process and criteria used to determine a worker’s classification as an employee or an independent contractor under the Fair Labor Standards Act and related federal laws.

This proposed rule would rescind DOL’s 2024 Final Rule addressing the classification of independent contractors and replace it with an analysis for employee classification similar to the one adopted by DOL in 2021. The classification analysis in the proposed rule would:

• Apply an “economic reality” test to determine whether a worker is in business for himself or herself as an independent contractor or is an employee economically dependent on an employer for work;
• Identify and explain two “core factors” to help determine if a worker is economically dependent on an employer for work or in business for him- or herself:
  • The nature and degree of control over the work; and
  • The worker’s opportunity for profit or loss based on initiative and/or investment;
• Identify other factors to help determine a worker’s status as an employee or independent contractor, including the amount of skill required for the work, degree of permanence of the working relationship, and whether the work is part of an integrated unit of production;
• Advise that the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible; and
• Provide eight fact-specific examples applying the factors to real-life circumstances.

Last year, DOL published guidance advising WHD field staff on the analysis to apply when determining employee or independent contractor status. That guidance instructed agency investigators to stop applying the analysis from DOL’s 2024 rule in current enforcement matters but, instead, rely on the principles outlined in Field Assistance Bulletin No. 2025-1 and Fact Sheet #13.

The 2024 final rule prompted a number of federal lawsuits challenging its legality. As a result, DOL said last year that it would be “…reconsidering the 2024 Rule, including whether to rescind the regulation.”

DOL will be accepting comments on this proposed rule through 11:59 pm (ET) April 28, 2026.