On February 26, 2026, the Department of Labor (DOL) announced a long-awaited proposed rule— again adjusting how the DOL views the appropriate classification of workers as “employees” or “independent contractors” under the Fair Labor Standards Act (FLSA). Consequences of worker misclassification can be significant not only for wages and benefits but for various employment protections, for example the Family and Medical Leave Act (FMLA). Therefore, employers should be aware of changes to the independent contractor rule and evaluate their policies and procedures regarding employee classification to avoid expensive misclassification penalties under both federal and state laws.
Background
The basis for classifying a worker as an independent contractor frequently changes from administration to administration. Most recently, President Biden’s DOL promulgated an employee-friendly rule that moved away from simple economic reliance and took into account several balancing factors. The Biden Rule suggested factors should be viewed in a light that favored a finding of employee status. In May of 2025, the DOL ordered its agents to stop enforcing that rule. Now, the Department formally announced their intent to rescind and replace the Biden-era rule with a proposed rule largely resembling a DOL rule adopted in 2021 during the first Trump presidency.
Rather than focus on the totality of the circumstances, this “new” rule will focus on two primary elements: (1) the nature and degree of control over the worker’s labor and (2) the worker’s opportunity for profit or loss based on their initiative and investment. The rule also considers:
- the amount of skill required for the work,
- the degree of permanence of the relationship, and
- whether the work is part of an “integrated unit of production.”
However, the DOL views those factors as “additional guideposts” which are “less probative” and are “very unlikely” to outweigh the core factors if those factors both favor a given classification. Additionally, the proposed rule will focus on work the worker actually performs, not work the worker can theoretically perform.
Key Takeaways for Employers
At the federal level, employers will have fewer hurdles to clear when classifying workers as independent contractors under this proposed rule. Workers classified as independent contractors do not have to be provided benefits under the FLSA, FMLA, and other laws, and are taxed differently. However, the economic reality test should still be taken seriously and any worker classification should carefully scrutinize the level of control an employer has over the worker and whether the worker is economically dependent on the employer. These are fact intensive inquiries and each employer should have a process in place to evaluate classification at the outset of work as well as throughout the engagement.
Moreover, the DOL’s new rule does not negate other federal laws or state specific laws that have various tests for determining whether an employer-employee relationship exists. States wield tremendous power in regulating workers within their borders and often have employee classification rules that differ from federal rules. Employers should therefore start with an assumption that any given worker is best classified as an employee unless the worker fits into a bona fide exemption under both state and federal laws. Even if a worker could be classified as an independent contractor under federal law, the same cannot always be said under state law.
The risks that misclassification carries are high. In some states, misclassification carries its own penalties, such as fines. Other consequences might include access to additional employment protections, overtime pay, tax liability, and unemployment insurance liability.
Attorneys in PilieroMazza’s Labor & Employment Group regularly assist employers in evaluating worker classification practices and policies to be compliant with federal and state requirements. If you have any questions or would like assistance, please contact Nichole Atallah, Corey Bohn, or another member of the Group.
