A proposed rule released by the U.S. Department of Labor (DOL) would once again change how employers determine whether a worker should be classified as an employee or an independent contractor under the Fair Labor Standards Act (FLSA). The proposal would rescind the DOL’s 2024 classification rule and replace it with a framework closely aligned with the 2021 rule, with several updates. The 2024 rule emphasized a totality‑of‑the‑circumstances approach to the economic reality test, moving away from the “core factors” that had been central to the 2021 version. The new proposal would shift the focus back to those core factors, signaling another significant change for employers evaluating worker status.
Core Factors for Worker Classification Rule
At the center of the proposal is the economic reality test, which examines whether a worker is economically dependent on an employer or operating an independent business. The DOL emphasizes that this test is flexible; no single factor determines the outcome and the list of considerations is not exhaustive. However, the proposed rule elevates two factors as the most influential in the analysis:
- The nature and degree of control the employer has over the work, including scheduling, supervision and the ability to set prices or rates.
- The worker’s opportunity for profit or loss, which looks at whether the individual can affect their earnings through managerial skill, business decisions or investments.
While these two core factors carry the most weight, the proposal also includes several additional considerations that play a supporting role in the overall assessment. These include the level of skill required for the work, the permanence of the working relationship and whether the work performed is part of an integrated unit of production within the employer’s business. Although these factors are given less emphasis, they still contribute to determining whether a worker is truly independent or economically reliant on the employer.
Next Steps
The DOL has set April 28, 2026, as the deadline for public comments on the proposed worker classification rule, giving employers and stakeholders a window to share feedback before the rule is finalized. While considering whether to submit comments, employers should also take proactive steps to prepare for potential changes and ensure their current practices align with the direction of the proposal.
A first step is to review existing worker classification practices, especially relationships currently designated as independent contractor arrangements. With the proposed rule placing renewed emphasis on the two core factors, employers may want to reassess whether their classifications remain defensible under the updated analysis. This review can help identify areas where documentation, contracts or day‑to‑day practices may need adjustment.
Employers should also be ready to update internal policies and training. Human resources teams, managers and legal departments will need a clear understanding of the proposed framework so they can apply it consistently. Preparing now can help organizations respond quickly if the rule is finalized, reducing compliance risk and ensuring smoother implementation.
Finally, employers should keep in mind that state laws may impose their own worker classification standards, some of which are more stringent than federal rules. Compliance requires meeting both federal and state requirements, so employers operating across multiple jurisdictions may need to navigate overlapping or conflicting criteria.
How We Can Help
It is important to monitor ongoing developments, as the rulemaking process may involve revisions, legal challenges or additional guidance from the DOL. That’s where we come in. By partnering with a payroll company familiar with FLSA regulations and others impacting your business’s payroll operations, you can gain confidence you are taking the right steps to stay compliant and avoid fines. Contact us today to learn how we can help.
