DOL Proposes Overhaul to Worker Classification Rules

On Feb. 26, 2026, the U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD) unveiled a proposed rule that would rescind the 2024 independent contractor classification rule under the Fair Labor Standards Act (FLSA) and replace it with a framework more closely aligned with earlier economic reality tests and “long-standing legal principles used in federal courts across the country.” 

The move marks a shift in federal policymaking on worker classification that could reshape compliance obligations for HR professionals and employers across industries. The change reflects the department’s view that the 2024 rule — which had set forth a structured six-factor plus an additional catchall provision test intended to clarify when a worker is an employee versus an independent contractor — was flawed and resulted in uncertainty for both employers and workers. 

Under the proposed regulation, the DOL would essentially reinstate an “economic reality” test similar to that used in the 2021 rule while also eliminating the current 2024 framework codified in 29 CFR part 795. The core inquiry in this test focuses on whether a worker is economically dependent on an employer — and thus an employee — or truly in business for themselves as a contractor. 

Sample Checklist: Utilizing Independent Contractors

To aid in that analysis, the rule identifies two primary factors that will carry the most weight: the nature and degree of control over the work and the worker’s opportunity for profit or loss based on initiative or investment. Additional considerations include skill level, permanence of the relationship, and whether the work is integrated into the employer’s business. 

For HR professionals, this proposed reversion to an economic reality framework could have important practical implications. The WHD emphasizes that actual work practices — not just contractual language — will be central to classification assessments, signaling to employers that compliance hinges on day-to-day labor arrangements rather than formal agreements alone. This mirrors how courts have historically evaluated misclassification under the FLSA, which governs minimum wage, overtime, and recordkeeping requirements but does not apply to true independent contractors. 

In addition to the FLSA, the proposed rule would apply the same classification analysis to the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA) — both of which incorporate the FLSA’s definition of “employ.” By aligning classification criteria across these statutes, the DOL seeks to simplify compliance for employers while promoting consistency in enforcement. 

Toolkit: Employing Independent Contractors and Other Gig Workers

What HR Should Know Now

With regard to litigation, the effect of this proposed rule may be limited, according to Steven Suflas, an attorney with Holland & Hart in Salt Lake City. “In the aftermath of Loper Bright, federal courts are to give less deference to ‘guidance’ from federal agencies,” he said. “Plus, the ping-ponging of the USDOL on this issue could give courts a second reason to be unimpressed.”

That said, employers would be wise to comply with the rule, regardless of how much weight courts give it. “An employer will be able to argue that reliance on it is a show of good faith sufficient to defeat a claim that any FLSA violations were willful,” Suflas said. 

Going forward, HR professionals should take the following steps to ensure compliance: 

1. Strategic Risk Assessments Matter More Than Ever 

Under the proposed standard, HR teams should scrutinize the actual working relationship, including decision-making authority, how assignments are managed, the degree of autonomy, and economic dependency. This is especially crucial for businesses that rely heavily on contingent labor, such as IT consultants, gig-economy partners, and freelance professionals.

2. Documentation Still Counts — But Isn’t Everything 

While written contracts remain important, they no longer provide a safe harbor if actual practices contradict their terms. HR must coordinate closely with legal counsel to ensure that workforce documentation — contracts, invoices, performance reviews, and engagement records — reflects how work is performed in practice.

3. Understand Risks Across Laws 

Because the DOL would extend this classification standard to FMLA and MSPA, HR practitioners must consider how worker status affects not just wage/hour protections but also leave entitlements and protections for migrant or seasonal workers. A misstep in classification could expose employers to compliance violations under multiple federal laws.

4. Comments Period Offers Engagement Opportunity 

The DOL is accepting public comments on the proposal through April 28, 2026. HR professionals and employer associations may want to weigh in during the 60-day comment period if they believe aspects of the rule need clarification or adjustment to better reflect workforce realities.