DOL Proposes New Independent Contractor Classification Rule

The U.S. Department of Labor’s Wage and Hour Division has released a proposed rule that would revise how workers are classified as employees or independent contractors under the Fair Labor Standards Act and other federal laws.

The proposal would rescind the department’s 2024 independent contractor rule and reinstate an analytical framework more closely aligned with the 2021 standards and long standing federal court precedent. The focus returns to the economic reality test, emphasizing whether a worker is economically dependent on the business.

The proposed rule centers on two primary factors:
• The level of control over the work
• The worker’s opportunity for profit or loss

Additional considerations would include skill level, permanence of the relationship and whether the work is integrated into the employer’s business. Importantly, the department makes clear that actual working practices will carry more weight than contract language alone.

Public comments are open through April 28th, and stakeholder feedback will shape the final rule.

What This Means for Employers:
Employers should proactively review contractor relationships, especially in gig and project based environments. Misclassification risks remain one of the most significant wage and hour exposures organizations face.

This remains a developing story, and final guidance may evolve.