On February 26, 2026, the Department of Labor announced a new proposed rule addressing whether a worker is properly classified as an employee or as an independent contractor under the Fair Labor Standards Act. The issue of whether an individual is properly classified as an independent contractor or as an employee under the law is commonly referred to as the misclassification issue. The new proposed rule represents another effort by the current administration to reverse the policies of the Biden administration.
In 2024, the Biden administration issued a final rule which specified that the proper analysis involved applying a multi-factor “economic reality” test in making these determinations. The 2024 rule overturned a rule from the previous Trump administration which was widely considered more favorable to businesses. The new proposed rule would replace the 2024 rule with an analysis similar to the one adopted under the previous Trump administration.
The analysis in the department’s 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: (1) the nature and degree of control over the work, and (2) 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.
- Provide eight fact-specific examples applying the factors to real-life circumstances.
The 60-day comment period for the proposed rule ends April 28, 2026. Comments can be submitted via this link. We anticipate that the proposed rule will be finalized substantially as it has been proposed.
Employers need to continue to carefully evaluate whether their workers should be classified as employees or independent contractors. This latest proposed rule represents another shift in policy made to align regulatory practices with the philosophical approach of the current administration and, although this rule would be more favorable for employers, the issue remains one which requires careful analysis. If you have questions about classification of your workers, you can email Philip Siegel or Scott Calhoun of the construction industry law firm Hendrick Phillips Salzman & Siegel PC.
