2026 Independent Contracting- DOL Rulemaking

Regulatory Topic: Independent Contracting

Regulatory Agency:

Link to Regulation

Link to Comment Submission

Regulatory Comment Open until 04/28/2026

New Proposed Rule (2026) — Support for Worker Flexibility & Economic Freedom

On February 27, 2026, the U.S. Department of Labor (DOL) published a Notice of Proposed Rulemaking to restore the rights of workers to earn a living as independent workers. For far too long, politicians have tried to restrict businesses that want to contract with independent workers by threatening investigations and lawsuits for not treating those workers as employees. But millions of Americans want to own and run their own businesses and more than 70 million American workers are already working as freelance, gig, self-employed, or contract workers. And today’s rule proposal will bring that dream closer to reality for millions more American workers.

The proposed rule would revise federal standards for classifying workers under the Fair Labor Standards Act (FLSA). It would also rescind the 2024 independent contractor regulation and largely restore the January 2021 framework, with clarifications and updates.

The proposal returns to a traditional “economic reality” analysis focused on whether a worker is in business for themselves or economically dependent on an employer. In particular, it restores emphasis on two core factors:

The degree of control exercised by the company
The worker’s opportunity for profit or loss

If those factors are not dispositive, the rule then considers additional contextual factors such as skill, permanence of the relationship, and the extent to which work is integrated into the business (as opposed to merely important to the hiring business). It further states that real-world economic substance—not mere contractual labels—governs classification.

The proposal also would apply this independent contractor framework across the FLSA, the Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), improving regulatory uniformity across the statutes enforced by the Wage and Hour Division (WHD).

Why I4AW Supports It

The proposed rule advances worker autonomy, entrepreneurship, and economic opportunity. Clearer guardrails grounded in longstanding economic reality principles preserve flexibility for millions of Americans who choose independent work arrangements. By restoring predictability, the rule supports innovation while remaining faithful to statutory limits.

How You Can Support the 2026 Proposal

The Wage and Hour Division has solicited comments from the public about the benefits from repealing the 2024 final rule and replacing it with the proposed language. Further, the Department requests comments on the consequences of the 2024 final rule, any aspects of the 2024 rule that should be retained, the benefits of the 2021 final rule, and the benefit of a uniform standard for independent contracting between Wage and Hour Division’s multiple statutory authorities.

The Department also requests comments about unique aspects of the language of the proposed regulation and its underlying analysis, including:

Its clarification of the “economic dependence” test by addition two sentences in 795.105(b).
The pros and cons of the economic reality tests from the 2021 and 2024 rules.
Whether the two primary factors in the economic reality test should be considered in tandem or only if the “control” test is not dispositive.
Best court cases to identify the important factors that courts consider when determining worker status.
Whether the “integrated unit” or “integral to the business” test is more appropriate and which is easier to apply.
Whether the contract between worker and business should be given weight in deciding independent contractor status.
Whether additional examples would be useful to the regulated community.
Data and information to use in refining the economic analysis, including data in support or to refute economic assumptions.
Data on the number of independent workers and number of businesses that hire independent workers.
Data on the labor force impacts of the proposed rule.
Data on the small business impact of this proposed rule.

In addition, comments explaining how you, your business, or your family have benefited from the opportunity to work as independent workers, the value of legal clarity for businesses that hire independent workers, and the importance of the services independent workers provide for their neighbors and communities are exceedingly helpful as the Department considers its next steps.

The 2024 Final Rule — A Problematic Departure

On January 10, 2024, the DOL published Employee or Independent Contractor Classification Under the Fair Labor Standards Act, which took effect March 11, 2024.

The 2024 rule adopted a six-factor “totality of the circumstances” economic reality test:

Opportunity for profit or loss
Investments by worker and employer
Degree of permanence
Nature and degree of control
Extent to which work is integral to the business
Skill and initiative

Unlike the 2021 framework, the 2024 rule gave no predetermined weight to any factor. And by not weighing any factor, a business had to hedge against the risk that any individual factor could tip the scales in favor of a “misclassification” finding and the liability such a finding would entail. While framed as neutral, in practice the rule tilted toward findings of employee status by broadening the “integral” and “control” inquiries and diminishing emphasis on entrepreneurial opportunity.

Proposed 2026 Rule vs. 2024 Final Rule — Key Differences

The 2026 proposed rule departs from the major weaknesses of the 2024 rule.

Issue	2026 Proposed Rule	2024 Final Rule
Analytical Framework	Restores structured economic reality test emphasizing core factors	Six-factor “totality of the circumstances” test with no weighting
Primary Focus	Control and opportunity for profit/loss	Broad multifactor balancing; presumption of “employee” status
Regulatory Predictability	Greater clarity through structured emphasis on control and profit opportunity	Greater uncertainty due to open-ended balancing
Impact on Independent Work	Supports entrepreneurial contracting	Increased risk of reclassification
Cross-Statute Consistency	Moves toward uniformity across FLSA, FMLA, MSPA	Limited to FLSA framework

Policy Implications

Benefits of the 2026 Proposed Rule

Reinforces economic substance over regulatory expansion
Provides clearer compliance standards
Protects voluntary independent contractor arrangements
Aligns federal standards more closely with traditional judicial interpretations

Concerns with the 2024 Final Rule

Expanded ambiguity under totality balancing
Potential chilling effect on independent contracting models
Treated historic guidance as binding legal requirements on businesses and contractors
Presumed that independent workers were misclassified and should be employees

Next Steps

The Department will accept public comments for 60 days following publication in the Federal Register. Stakeholders—including independent workers, small businesses, trade associations, and policy organizations—are encouraged to participate in the rulemaking process.

What is independent contracting?

Independent contracting is the process where self-employed workers perform services for clients on a contractual basis for income. While ICs do have to meet certain standards and other expectations of clients regarding the quality and timing of their work product, they are not under the direct control of business clients like traditional employees are and retain entrepreneurial opportunity for their own profit and loss.

Of the over 70 million freelancers in the U.S. economy as of 2022, tens of millions earn income as ICs across many industries including in transportation, construction, medical, educational, entertainment, financial, legal, housing, agriculture, and other service roles. ICs with their small businesses also employ tens of millions of additional workers and create many of the small businesses that fuel communities. In addition to pursuing self-employment for more income, many prefer the additional flexibility in these careers to raise children and often to deal with personal or family health issues.

A federal study by the Bureau of Labor Statistics (BLS) also found that nearly 80 percent of ICs prefer independent work over traditional jobs and less than 10 percent would switch to a traditional job if given the choice.

Because ICs are self-employed, their business clients do not collect payroll taxes or enforce certain federal and state labor laws that apply to traditional employees such as government-mandated hourly and wage requirements among others.

In order to determine if a worker is a traditional employee or an IC, the process is not as simple as ICs making a personal choice about their self-employed status with clients. Instead, different federal and state agencies utilize employment tests to make determinations. At the federal level alone, this includes different processes for determinations by the Internal Revenue Service (IRS), Department of Labor (DOL), and National Labor Relations Board (NLRB). Being classified as an employee by one agency jeopardizes a person’s IC status broadly. Examples of employment tests include:

US Department of Labor (DOL) economic realities test – In enforcing the Fair Labor Standards Act of 1938 (FLSA), DOL utilizes an “economic realities test” that has largely been set by court precedent over decades. Subjective factors to determine IC vs. employee status include opportunities for profit and loss, operation of an independent business, nature and degree of control by principals, permanency of relationship, and extent to which services are integral to a principal’s business.
IRS and NLRB Common Law Tests – The IRS and NLRB common law tests are similar. Of note, both tests allow for a broad interpretation such that ICs and employees can share some factors in common but remain classified differently as a result of reviewing a totality of individual situations.
- NLRB common law test – Over time, federal courts interpreted how the NLRB must enforce the National Labor Relations Act (NLRA) in making employment determinations, which particularly governs whether workers are eligible for unionization. While specific factors have been changed by the NLRB over time and through ensuing court decisions because no statute provides a specific test, the recurring perspective supported in courts is determining workers to be ICs if they have entrepreneurial opportunities for profit and loss. The 2019 SuperShuttle case reinstated the common law standards that were used prior to Obama era changes that failed to persuade courts to modify their historical interpretations.
- Internal Revenue Service (IRS) common law test – The IRS makes employment determinations for federal taxation purposes using a common law test that has also been established through court precedent rather than formally through statute. Traditionally, the common law test was a 20 factor test that has since evolved into three primary categories: behavioral, financial, and type of relationship. These evaluate the degree of control and dependence of workers with no definitive factors used solely to determine employment status.
ABC tests – Used by states like California, ABC tests are particularly restrictive against independent contracting. A range of factors are established under three main categories – Absence of Control, Business of the Worker, and the Usual Course of Business. Unlike other tests, ABC tests presume all workers are employees, and failing to fully meet any of the subjective criteria in an ABC test is grounds for governments reclassifying ICs to employees. Among other harmful provisions, the NLRB would be required to utilize an ABC test if the PRO Act were enacted. This legislation passed the U.S. House in 2021 and is endorsed by President Joe Biden. At her confirmation hearing on September 13, 2022, DOL Wage and Hour Administrator-nominee Jessica Looman said the Department does not have the authority to impose an ABC test via the regulatory process. Her view was also articulated in DOL’s NPRM.

Conclusion

The Institute for the American Worker supports the Wage and Hour Division’s 2026 proposed rule as a meaningful step toward restoring clarity, statutory fidelity, and economic flexibility in federal independent contractor law. Compared to the 2024 rule, which expanded ambiguity and tilted toward reclassification, the new proposal better respects worker choice and entrepreneurial opportunity while maintaining appropriate legal safeguards.

Brief DOL Independent Contractor Timeline:

1947 – Rutherford Food Corp. v. McComb, 331 U.S. 722. In this U.S. Supreme Court decision, the court found that employment status was not dependent on isolated factors but instead “upon the circumstances of the whole activity.”
1947 – United States v. Silk, 331 U.S. 704. In another case involving independent contractor status as it related to the Social Security Act, the Supreme Court clarified that workers were evaluated as a matter of “economic reality.”
1961 – Goldberg v. Whitaker House Cooperative, Inc., 366 U.S. 28. In this Supreme Court case, the Court further solidified looking at full circumstances around employment status as based on “economic reality.”
2015 – President Barack Obama’s DOL published Administrators Interpretation No. 2015-1 on July 15, which instructed the DOL’s Wage and Hour Division (WHD) in making employment determinations to focus on the “suffer or permit to work” standard when considering economic realities factors. This interpretation was an attempt to more aggressively classify workers as employees, not ICs.
2017 – On June 7, the Trump administration withdrew the Obama 2015 DOL guidance on independent contracting, restoring traditional emphasis on the economic realities test.
2020-21 – On September 25, 2020, the Trump DOL proposed a new independent contractor rule regarding IC status under FLSA. This was finalized and published in January 2021 and went into effect in March 2021. This rule adhered to DOL’s economic realities factors but sought to provide clarity in consideration of the modern workforce. This rule prioritized two factors, the nature and degree of control over the work and a worker’s opportunity for profit or loss based on initiative and investment, over three other traditional economic realities factors.
2021-2022 – In May 2021, the Biden DOL withdrew the Trump DOL independent contractor rule, but as summarized by DOL, “On March 14, 2022 a district court in the Eastern District of Texas vacated the Department’s Delay Rule, Independent Contractor Status Under the Fair Labor Standards Act (FLSA): Delay of Effective Date, 86 FR 12535 (Mar. 4, 2021), and the Withdrawal Rule, Independent Contractor Status Under the Fair Labor Standards Act (FLSA): Withdrawal, 86 FR 24303 (May 6, 2021). The district court further stated that the Independent Contractor Rule, Independent Contractor Status Under the Fair Labor Standards Act, 86 FR 1168 (Jan. 7, 2021), became effective as of March 8, 2021, the rule’s original effective date, and remains in effect.”
2022 – On September 28, 2022, the White House’s Office of Information and Regulatory Affairs (OIRA) concluded internal review of a new DOL independent contractor rule.
2022 – On October 13, 2022, DOL published a Notice of Proposed Rulemaking (NPRM) to rescind the 2021 rule and impose a new IC rule based on a multi-factored economic realities test. A period for public comment will run for 45 days, closing on November 28, 2022.
2024 – On January 10, 2024, DOL published a Final Rule to restrictively define independent contracting.
2024 – Five lawsuits were filed against the 2024 DOL rule and remain pending at different stages. (See Frisard’s Transp., LLC v. United States DOL; Warren v. United States DOL; Coalition for Workforce Innovation v. Micone; Littman v. United States DOL; and Colt & Joe Trucking v. United States DOL)
2025 – On May 1, 2025, DOL issued a Field Assistance Bulletin to Wage and Hour Division staff clarifying that DOL would exercise enforcement discretion and not apply the 2024 independent contractor rule in enforcement actions.
2026 – On February 26, 2026, DOL published a Proposed Rule to open opportunity for small businesses and entrepreneurs to work as independent workers.