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The Employer Handbook Blog
DOL Proposes New Independent Contractor Rule: Now With Fewer “It Depends”
Yesterday, the Department of Labor announced a new proposal on independent contractor classification. If finalized, the proposal would once again reshape how employers evaluate whether a worker is an employee or an independent contractor under federal law.
TL;DR: The DOL’s proposal would rescind the 2024 independent contractor rule and largely return to the 2021 economic reality framework, which gives greater weight to two “core” factors – control and opportunity for profit or loss. The proposal also expands that framework beyond the Fair Labor Standards Act to the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act, with targeted edits and updated examples.
What the Department is proposing
The DOL is proposing to rescind the 2024 independent contractor rule and replace it with a modified version of the 2021 framework.
The central question would remain the same: is the worker economically dependent on the putative employer, or is the worker truly in business for themself?
The proposal would restore the 2021 structure that identifies two “core” factors as typically more probative than the others:
- The nature and degree of control over the work
- The worker’s opportunity for profit or loss
Under that weighted approach, those two factors generally carry greater analytical significance than the remaining factors.
The Department is not republishing the 2021 rule word-for-word. The proposal includes one substantive edit, a non-substantive edit, and several small modifications to the illustrative examples. But the framework itself — including the emphasis on core factors — tracks the 2021 rule.
More on that in a bit.
First, let’s talk about the rule change in practical terms. To understand the shift, it helps to look at what rule is currently in effect.
How this differs from the current 2024 rule
The rule in effect today uses a six-factor, totality-of-the-circumstances framework and explicitly declines to elevate any factor above the others.
It states that no one factor or subset of factors is necessarily dispositive, that weight depends on the facts and circumstances, and that additional relevant factors may also be considered if they bear on whether the worker is in business for themself.
The current rule also stepped back from the 2021 regulation’s strong statement that actual practice is more relevant than what is contractually or theoretically possible. Instead, it adopted a less categorical approach in which reserved contractual rights may be relevant depending on the facts.
In short, the 2024 rule embraces a flatter balancing test. The proposed rule would swing the pendulum back toward a framework that signals where the analytical weight usually lies.
How the proposal expands on 2021
The most significant expansion compared to the 2021 rule is scope.
The proposal would apply this contractor test not just to wage-and-hour claims under the FLSA, but also to leave rights under the FMLA and protections under the Migrant and Seasonal Agricultural Worker Protection Act. The 2021 rule only applied to the FLSA. This one would stretch the same test across those other federal laws too.
The proposal also updates the regulatory text and adds new examples — including one involving an app-based worker — rather than simply reinstating the 2021 rule as-is.
Employer takeaways
1. Focus first on control and profit opportunity.
If this rule becomes final, those two factors are intended to carry greater weight in most cases. Employers should understand and document how control is exercised and whether the worker genuinely has entrepreneurial opportunity.
2. Align operations with contracts.
Labels alone will not carry the day. If day-to-day practices look like employment, that reality will drive the analysis.
3. Federal compliance is not a 50-state strategy.
Even if a model passes under the federal economic reality test, state wage-hour laws may apply stricter or different standards, including ABC-style tests in some jurisdictions.
4. Multi-state employers should audit proactively.
Now is a good time to review contractor relationships under both the proposed federal framework and the strictest applicable state standards.
Final word
This is still a proposal and will go through notice-and-comment rulemaking. But it is a clear signal that the DOL wants to move away from the current totality-of-the-circumstances approach and back toward a framework that emphasizes control and entrepreneurial risk.
If your contractor relationships are defensible under that structure, the added clarity may be welcome. If they rely on creative labeling or gray-area practices, this is the moment to reassess.