U.S. DOL Proposes New Independent Contractor Rule

The way the federal Department of Labor determines who constitutes an employee versus an independent contractor may be changing. The U.S. Department of Labor (“DOL”) unveiled a Proposed Rule that would rescind the 2024 independent contractor framework and return largely to a prior model akin to the DOL’s 2021 approach, emphasizing economic independence as the core inquiry.

At the heart of the Proposed Rule is a question that has long plagued employers: is a service provider truly running their own business, or are they effectively part of the employer’s operation? The DOL’s Proposed Rule suggests that the answer should hinge on the service provider’s economic independence and the control the employer exerts over the service provider.

The 2024 rule approached service provider classification like a checklist, weighing six factors equally through a totality of circumstances test. Namely, the following factors were used to determine whether a service provider was economically dependent on the employer: (1) the opportunity for profit or loss depending on managerial skill; (2) investments by the service provider and the potential employer; (3) the degree of permanence of the work relationship; (4) the nature and degree of control over the service provider; (5) the extent to which the work performed is an integral part of the potential employer’s business; and (6) skill and initiative.  The Proposed Rule highlights two core factors that largely determine classification: how much control the employer exercises and the service provider’s ability to profit or suffer a loss from their work. These factors are meant to reflect the reality of how work is done in modern industries, from gig economy platforms to creative consulting.

Control is the first litmus test. If a service provider decides when, where, and how tasks are performed, chooses which projects to take, and can work for multiple clients, the DOL is signaling that they are likely an independent contractor. Simple obligations like meeting deadlines, following safety protocols, or maintaining insurance (common in many business-to-business agreements) do not automatically count as evidence of employer control. This distinction makes the new rule more focused on actual oversight, not contractual formalities or theoretical possibilities of what the service provider might do.

The second core factor is the potential for profit or loss based on the service provider’s exercise of initiative or management of their investment. Service providers who can increase earnings, or risk losses, through skill, investment, or strategic decisions are more likely to be considered independent contractors. This factor now folds the service provider’s investment in tools, equipment, or materials directly into the profit-or-loss analysis, rather than evaluating it separately or in comparison to the employer’s investment.

When these two factors point in the same direction, the DOL says the classification is usually clear. Conflicting signals, however, require a deeper look at supporting factors like the skill required for the work, the duration of the engagement, and how integrated the work is into the employer’s operations. More specifically, jobs that demand specialized expertise or training that the employer does not provide tilt toward independent contractor status, while routine work with minimal training tends to indicate employment. The permanence of the working relationship is another factor: temporary or project-based engagements are generally more consistent with contractor status, while ongoing roles suggest employment. Integration into the business’s workflow also plays a role. If the service provider’s tasks can be separated from the employer’s core operations, the balance tips toward independent contractor classification; if the work is embedded within the company’s processes, it favors employee classification.

Although it may appear that the Proposed Rule might make it easier to establish contractor status, employers should be mindful that federal courts are not required to adopt this interpretation of law. In addition, many states impose more stringent classification standards than the Proposed Rule, requiring employers to take state law nuances into account when determining how to properly classify a worker.

The DOL has opened the Proposed Rule to public comment through April 28, 2026. Once the comment period closes, the agency will review input and potentially revise the framework before issuing the final rule.

Employers that rely on independent contractors should consult with counsel to evaluate their classification practices in anticipation of the potential DOL rule change, particularly given the potentially differing standards under the new DOL rule, state requirements, and federal case precedent. Employers with questions about the Proposed Rule or compliance should contact Tonianne Florentino at tflorentino@fglawllc.com or Sabrina Jorge at sjorge@fglawllc.com or any other attorney at the Firm.

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