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On February 26th, 2026, the Department of Labor (DOL) announced a proposed rule designed to help determine independent contractor status. Overall, the new independent contractor rule would help employers better understand when a worker is an employee. Conversely, the rule will allow employers to know when a worker could be classified as an independent contractor under the Fair Labor Standards Act (FLSA). Previously, the DOL announced the launch of a modern open data portal that provides users with more transparent access to data on the current American workforce.
Overview of the Fair Labor Standards Act (FLSA)
Explicitly, the FLSA is the country’s primary federal wage and hour law and one of the five employment laws that all businesses must know. As such, the FLSA provides a minimum wage and overtime protections for virtually all U.S. workers. Generally, the FLSA requires private sector and government employers to pay a federal minimum wage of not less than $7.25 an hour and an overtime pay rate of one and one-half the regular pay rate for hours worked over 40 a week.
Worker Misclassification Prevention Under the FLSA
However, currently, some employers illegally and inaccurately classify a worker as an independent contractor to avoid paying required overtime. What’s more, this illegal employee misclassification denies workers benefits and protections to which they are legally entitled. It’s worth noting that misclassifying employees is unlawful even if the employee agrees to the erroneous classification. Independent contractors differ from employees in that they:
- control their workload or run their own business,
- provide their materials,
- work with multiple clients, and
- deal with temporary client relationships.
Generally, the proposed rule would rescind the DOL’s current rule on the classification of independent contractors. It would be replaced with an analysis of employee classification similar to the one adopted by the agency in 2021. Consistent with previous Supreme Court and federal circuit court precedent, the current administration believes the proposed rule would make it easier to properly distinguish between employees protected by the FLSA and workers who work as independent contractors.
Overview of the Proposed Independent Contractor Classification Rule
Specifically, the proposed rule:
- Applies an “economic reality” test to determine whether a 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 a worker is economically dependent on an employer for work or in business for themself:
- 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 a worker’s status as an employee or independent contractor, 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.
Employer Takeaways
In conclusion, the DOL encourages all interested parties to submit comments on the proposed independent contractor rule. Under the proposal, the public has 60 days from the date the rule was published in the Federal Register. Given that, comments can be delivered in one of two ways:
- Electronic Comments: Submit comments through the Federal eRulemaking Portal at https://www.regulations.gov.
- Physical Mail: Address written submissions to: Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue, N.W., Washington, DC 20210.
No matter how comments are submitted, they must be received by April 28th, 2026.
