Few questions in U.S. employment law have proven as persistent or as disruptive for businesses—as determining whether a worker is an “employee” or an “independent contractor.” Since the Fair Labor Standards Act (FLSA) was enacted in 1938, employers have struggled with a statute that imposes sweeping wage-and-hour obligations on employers for “employees” while offering little statutory guidance on who qualifies as an “independent contractor.”

The FLSA defines “employ” broadly as “to suffer or permit to work,” a phrase the Supreme Court has repeatedly described as intentionally expansive. At the same time, the Court has recognized that not everyone who performs work for a business is an employee; bona fide independent contractors exist and fall outside the FLSA’s protections. Reconciling those two principles has produced nearly nine decades of judicial interpretation, agency guidance, and regulatory reversals.

Against a backdrop of nearly 90 years of uncertainty, the U.S. Department of Labor (DOL) issued a new Notice of Proposed Rulemaking (NPRM) on February 27, 2026, titled Employee or Independent Contractor Status under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act. The proposal would once again recalibrate how businesses classify workers — and, notably, would extend a single test across three federal statutes — the FLSA, the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Worker Protection Act (MSPA).

This post provides historical context, explains what the proposed rule would do, compares it to the 2024 and 2020/2021 independent contractor rules, and outlines what employers should be doing before the public comment period for the proposed rule closes.

A Brief History: The Economic Reality Test and Regulatory Whiplash

In the years immediately following the FLSA’s enactment, the Supreme Court confronted the absence of a statutory definition for “independent contractor.” In a series of cases in the 1940s — most prominently United States v. Silk, Rutherford Food Corp. v. McComb, and Bartels v. Birmingham — the Court articulated what became known as the “economic reality” test.

Rather than focusing on technical common-law concepts, the Court directed decisionmakers to examine whether, as a matter of economic reality, the worker is economically dependent on the business or is instead in business for himself. To guide that inquiry, courts have traditionally considered multiple, non-exclusive factors, including:

• The nature and degree of control over the work
• The worker’s opportunity for profit or loss
• The worker’s investment in equipment or materials
• The permanency of the relationship
• The skill required
• Whether the work is part of the employer’s business or production process

No single factor is dispositive, and the analysis is highly fact-specific for each worker. Over time, federal appellate courts and the DOL developed slightly different formulations of these factors, but the core inquiry — economic dependence versus independent business — remained the same.

From Guidance to Regulation—and Back Again

For decades, the DOL relied largely on sub-regulatory guidance, such as opinion letters and fact sheets, to explain how it would apply the economic reality test. That strategy changed in the last several administrations, as the DOL attempted to codify its interpretation of the independent contractor rule through formal rulemaking:

• 2021 Rule (Trump Administration): For the first time, the DOL issued a comprehensive regulation organizing the economic reality test. It identified two “core” factors — control and opportunity for profit or loss — as the most probative, with three additional factors serving as guideposts. The 2021 rule emphasized actual practice over contractual labels and included detailed examples.
• 2024 Rule (Biden Administration): The DOL under the Biden administration rescinded the 2021 independent contractor rule and replaced it with a six-factor, totality-of-the-circumstances test. The 2024 rule rejected the concept of “core” factors and instead treated all factors as equally weighted, with extensive discussion of each. Many employers viewed the totality-of-the-circumstances approach as less predictable and more restrictive than independent contractor relationships.
• 2025–2026: Litigation initiated by various business groups challenging the 2024 rule, coupled with DOL enforcement guidance, led to further uncertainty about the independent contractor rule. Against that backdrop, the DOL initiated a new rulemaking to reconsider its approach.

The 2026 Proposed Rule: What Would It Do?

The Big Picture

The 2026 NPRM proposes to rescind the 2024 rule and largely readopt the framework of the 2021 rule, with some modest refinements. Importantly, the proposed rule would apply the same analysis not only under the FLSA, but also under the FMLA and the MSPA, two federal statutes that incorporate the FLSA’s definition of “employ.”

The DOL’s ostensible goal is clarity, predictability, and consistency across statutes.

The Proposed Independent Contractor Test: Economic Reality, with Core Factors

For employers, the most significant change from the 2024 rule is the return to a structured analysis that prioritizes control and profit/loss, rather than an open-ended balancing of six broadly worded factors. Under the proposed rule, the ultimate inquiry remains whether the worker is economically dependent on the potential employer for work or is in business for themself. To answer that question, the DOL would apply a multifactor economic reality test with two core factors and three additional guidepost factors.

The Two Core Factors

These factors would “typically carry greater weight” in the analysis of who is an independent contractor:

1. Nature and Degree of Control Over the Work
   This factor examines who exercises substantial control over key aspects of the work, such as scheduling, workload, project selection, and the ability to work for others (including competitors).
   • Control by the worker favors independent contractor status.
   • Control by the business favors employee status.
     Importantly, the proposal clarifies that requirements to comply with legal obligations, safety standards, insurance requirements, or quality control terms typical of business-to-business relationships do not, by themselves, indicate employee status.
2. Opportunity for Profit or Loss
   This factor looks at whether the worker can earn profits or incur losses based on initiative, managerial skill, business judgment, or investment (such as hiring helpers or purchasing equipment).
   • The focus is on opportunity, not guaranteed profit.
   • Merely working more hours or faster to earn more money points toward employee status.

If both core factors point to the same classification, the DOL states there is a substantial likelihood that classification is correct.

The Additional Guidepost Factors

These factors remain relevant under the proposed rule but are generally less probative:

3. Skill Required for the Work
   Work requiring specialized skills that the business does not provide favors independent contractor status. Reliance on employer-provided training favors employee status.
4. Permanence of the Relationship
   Indefinite or continuous relationships suggest employee status, while definite, project-based, or sporadic relationships suggest independent contractor status. Seasonal work alone is not determinative.
5. Integrated Unit of Production
   This factor asks whether the worker’s services are integrated into the business’s production process, as opposed to being segregable. The proposal deliberately rejects the broader “integral to the business” concept used in the 2024 rule.

Actual Practice Matters More Than Contracts

Consistent with the 2021 rule, the proposal emphasizes that what the parties actually do matters more than what a contract theoretically allows. Reserved rights that are never exercised carry less weight than real-world practices.

What happens next?

The DOL’s proposed independent contractor rule does not become effective immediately. The agency is accepting public comments on the proposed rule through April 28, 2026. Comments may be submitted electronically through Regulations.gov under Docket No. WHD‑2026‑0001. After consideration of all public comments submitted, the DOL can publish and finalize the rule in its current form or with modifications, which may take the agency some time to do if the volume of comments is high. Or after consideration the DOL could decide not to publish any new rule. Legal challenges to the DOL’s new independent contractor rule seem likely from organized labor and other interested parties, especially in light of a recent Supreme Court decision that tightened judicial oversight of agency rulemaking and may result in further delays in any implementation of a new independent contractor rule.

What Employers and Corporate Counsel Should Be Doing Now

With the public comment period underway, businesses should take proactive steps:

1. Audit Independent Contractor Relationships
   Review current contractor engagements through the lens of the proposed rule’s core factors. Pay particular attention to whether your business or the contractor controls schedules, assignments, and pricing, and whether contractors have a genuine opportunity for profit or loss.
2. Align Contracts with Reality
   Contracts should reflect actual day-to-day practices. Boilerplate “independent contractor” language will carry little weight if your operations tell a different story.
3. Evaluate Cross-Statute Risk
   Because the proposal would apply the same test under the FLSA, FMLA, and MSPA, misclassification risks may extend beyond wage-and-hour exposure to leave and agricultural compliance obligations.
4. Consider Submitting Comments
   Employers, trade associations, and counsel should consider submitting comments, particularly if the proposed framework would materially affect business models or industries that rely on independent contractors.
5. Prepare for Change, but Not Panic
   The proposed rule is not yet law, and the final rule may differ in its terms and conditions. Still, businesses that understand and plan for the likely direction of the rule will be better positioned if and when it takes effect.

Conclusion

The DOL’s 2026 proposed rule represents yet another turn in the long-running effort to define who is an employee and who is an independent contractor under federal labor law. By returning to a core-factor version of the economic reality test and extending it across the FLSA, FMLA, and MSPA, the Department is signaling a renewed emphasis on clarity and predictability—while still preserving broad worker protections.

For business owners and corporate counsel, the message is familiar but urgent: classification decisions matter, the rules continue to evolve, and now is the time to engage—both internally and in the rulemaking process—before the next chapter becomes final.

This blog will be updated with the details of any changes to the proposed independent contractor rule. In the interim, if you need assistance with independent contractor issues or federal, state, or local employment law questions for your business, please contact Doug Taylor, rdougtaylor@beankinney.com, or your current Bean, Kinney & Korman attorney.

This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.