DOL Proposed Rule Replaces Independent Contractor Regulations With Modified 2021 Framework

On February 26, the Department of Labor’s Wage and Hour Division (WHD) issued a proposed rule that would replace the Biden administration’s 2024 independent contractor regulation with a modified version of the 2021 rule. If finalized, the proposal would shift the framework used to determine employee versus independent contractor status under federal wage and hour law. 

Background 

In January 2021, at the end of the first Trump administration, WHD issued a final rule to establish economic reality factors for determining whether a worker should be classified as an employee or independent contractor under the Fair Labor Standards Act (FLSA).  

The 2021 rule identified five non-exhaustive factors drawn from Supreme Court and lower court decisions to guide the “economic reality” analysis. Two of the five factors were designated as “core” factors: 

• The nature and degree of control over the work
• The individual’s opportunity for profit or loss

WHD stated that these core factors carried greater weight than the remaining three factors: 

• The amount of skill required for the work
• The degree of permanence of the working relationship
• Whether the work is part of an integrated unit of production

The rule took effect in March 2021 despite the early Biden administration’s attempts to delay and withdraw it.  

In January 2024, WHD rescinded the 2021 rule and issued a new final rule adopting a different approach. The 2024 rule set forth six non-exhaustive factors as “tools or guides” for conducting a totality-of-the-circumstances analysis: 

• The extent to which the work is integral to the employer’s business
• The worker’s opportunity for profit or loss depending on managerial skill
• The investments made by the worker and the employer
• The worker’s use of skill and initiative
• The permanency of the work relationship
• The degree of control exercised or retained by the employer 

Unlike the 2021 rule, the 2024 rule did not designate any core factors and stated that no single factor or subset of factors is determinative in establishing a worker’s classification. The weight given to each factor depends on the specific facts and circumstances of the relationship. 

Although the 2024 rule remains in effect, it has faced several legal challenges. In May 2025, WHD issued a Field Assistance Bulletin stating that while reconsidering the 2024 rule, it would no longer apply that rule in FLSA investigations and would instead enforce WHD Opinion Letter FLSA2019-6.  

2026 Rule 

The 2026 proposed rule seeks to replace the Biden administration’s rule with a “modified and updated” version of the 2021 rule. In the proposed rule, WHD expressed concern that the 2024 rule “broadens and generalizes a variation of the longstanding legal analysis in ways that complicate and frustrate its application by workers and businesses” and may set “a higher bar to find independent contractor status than the law requires.” 

The 2026 proposed rule largely restores the framework of the 2021 rule. As written, the proposed rule: 

• Reinstates the two “core” factors framework
• Eliminates the 2024 rule’s unweighted totality-of-the-circumstances approach
• Adds the following language not included in the 2021 rule: “Economic dependence does not focus on the amount of income the worker earns, or whether the worker has other sources of income.”
• Slightly modifies and adds occupation-specific examples (see chart below)
• Applies the same classification framework under the FLSA, the Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA)

The proposed rule will be officially published in the Federal Register on February 27, with a 60-day comment period. WHD will review submitted comments and use them to finalize the rule. Until then, the 2024 rule remains in effect, although WHD’s enforcement posture will continue to reflect the approach outlined in the 2025 Field Assistance Bulletin. 

CUPA-HR is analyzing the proposed rule and will keep members apprised of further updates on the regulations through news updates and future webinars.  

Comparison of 2021 Final Rule and 2026 NPRM Proposed Rule Examples