On Friday, February 27, 2026, the U.S. Department of Labor published a proposal to rescind its 2024 test for determining employee vs. independent contractor status, announced under the Biden administration, and replace it with a modified version of the test promulgated during President Trump's first administration. Here is what employers need to know.
Background
The Fair Labor Standards Act (FLSA) establishes federal minimum wage and overtime requirements for employees but does not apply to independent contractors. The statute does not define the term independent contractor, but over time a combination of court rulings and DOL guidance developed an “economic reality” test for determining which workers qualify as independent contractors rather than employees. Different versions of this test look at different factors, like the extent of a company’s control over the worker, the worker’s opportunities for profit and loss, whether the worker is in business for himself or herself, and the permanency of the relationship.
In 2021, the DOL promulgated a rule that organized these economic reality factors for the first time. Although the DOL explained the list of factors was not exhaustive, and no one factor was dispositive, the DOL emphasized two core factors: the nature and degree of control over the work and the worker’s opportunity for profit or loss.
In 2024, the Biden administration replaced the 2021 rule with a new rule that uses a 6-factor test to evaluate the “totality of...
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