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The Department of Labor issued a Notice of Proposed Rulemaking on February 26, 2026, proposing to revoke the 2024 independent contractor rule and reinstate a modified version of the 2021 standard. The proposed rule replaces the current six-factor economic reality test with a two-tier approach that gives primary weight to (1) nature and degree of control over work and (2) opportunity for profit or loss, while treating skill, permanence, integration, and other contextual factors as secondary considerations. The standard focuses on whether a worker is economically dependent on an employer rather than operating independently. A final rule is expected later in 2026 following the public comment period.
US Department of Labor Proposes Revised Independent Contractor Standard Under FLSA
The US Department of Labor issued a Notice of Proposed Rulemaking on 2026-02-26 proposing to revoke the 2024 independent contractor rule and reinstate a modified version of the 2021 standard for determining worker classification under the Fair Labor Standards Act (FLSA) and Family and Medical Leave Act (FMLA). A final rule is expected in late 2026 following the public comment period.
Who is affected
All employers subject to federal wage and hour laws are affected by this proposal, regardless of industry or company size. The revised standard applies across all US jurisdictions, including Pennsylvania and other states with their own wage and hour regimes.
What's changing
The proposed rule replaces the current six-factor "economic reality" test with a two-tier classification approach:
| Classification Factor | Current Standard | Proposed Standard |
|---|---|---|
| Primary weight | All six factors evaluated equally | (1) Nature and degree of control over work; (2) Opportunity for profit or loss |
| Secondary weight | Equal consideration | Skill required; permanence of relationship; integration into production; contextual factors indicating economic dependence |
| Core question | Whether worker is economically dependent on employer | Whether worker is economically dependent on employer or operates independently |
Under the proposed rule, no single factor is dispositive. The analysis focuses on whether a worker is economically dependent on an employer rather than operating as an independent business. The DOL states the current standard sets the classification bar too high and discourages legitimate use of independent contractors.
What NEO partners and clients should do
- Monitor the comment period. Review DOL announcements and consider submitting feedback if your organization uses independent contractors in roles that may be affected by the revised standard.
- Audit current classifications. Document the basis for independent contractor classifications under both the current six-factor test and the proposed two-tier approach, particularly for roles involving high employer control or limited profit/loss opportunity.
- Prepare for transition. Develop a plan to reclassify workers if the final rule adopts the proposed standard, including potential impacts on benefits eligibility, tax withholding, and payroll administration.
- Track the final rule timeline. Plan for implementation in late 2026 or early 2027 once the DOL issues its final determination.
