On February 26, 2026, the U.S. Department of Labor (“DOL”) unveiled a proposed rule that would rescind its 2024 independent contractor regulation and reinstitute a streamlined “economic reality” analysis to determine whether a worker is in business for themselves as an independent contractor or is, in reality, an employee economically dependent on an employer for work. The proposed rule could lower costs for companies in a range of industries, including trucking, healthcare, retail sales and app-based transportation and delivery services, which rely heavily on independent contractors.

The DOL explains that the 2024 six‑factor “totality” rule bred uncertainty, created overlapping or duplicative considerations across factors, and risked chilling legitimate independent contractor arrangements by making classification appear harder than the law requires. The DOL believes the two‑core‑factor focus tracks Supreme Court precedent and reduces litigation friction for both sides.

The new rule, an updated reprise of the 2021 approach, identifies two “core” factors as typically more probative than the rest:

• The nature and degree of control over the work. This factor points to an independent contractor relationship where the worker controls schedule, selects projects, and can work for others (including competitors).  This factor points to employee status where the company substantially controls the worker’s schedule/workload or imposes exclusivity. Compliance clauses (legal/safety/insurance/quality standards, deadlines) do not count as employer “control” for this factor.
• The worker’s opportunity for profit or loss based on initiative and/or investment. This factor points to an independent contractor relationship when the worker’s initiative/managerial skill or investment (helpers, equipment, materials) drives earnings.  This factor points to an employee status if earnings rise only by working more hours or faster. Only the worker’s own investment matters.

Andrew Rogers, the administrator of the DOL’s Wage and Hour Division told reporters, “[g]enerally, if a worker is economically dependent on an employer for work, he or she is an employee. Generally, if a worker is in business for him or herself and isn’t dependent on an employer for work, the worker is an independent contractor.”

The proposed new rule lists additional factors to help determine a worker’s status as an employee or independent contractor, including the amount of skill required for the work, the degree of permanence of the working relationship, and whether the work is part of an integrated unit of production. Under the new rule, the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible. Put another way, what the parties actually do matters more than what the contract says might be done.

While the proposed DOL rule is aimed at a more predictable worker classification model (the new rule also would apply to classifications under the Family Medical and Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act, both of which use the same analysis to determine employment status), many states, (including, for example, California, New Jersey, and Illinois) have their own tests to determine independent contractor status. Employers should be sure to review their current work arrangements and applicable state rules to determine whether their workers are appropriately classified.

The public may submit comments on the proposed rule, which has a 60-day comment period that closes at 11:59 p.m. ET on April 28, 2026.