On February 27, 2026, the U.S. Department of Labor (DOL) published a new and much-anticipated proposed rule regarding how to determine independent contractor status for workers. The new rule would make it easier to classify workers as independent contractors, at least under federal standards.
As most employers know, the debate about the legal distinction between independent contractors and employees has been a hot topic on the state and federal levels for the past five years. At the federal level, the ping-pong between the Trump and Biden administrations has created confusion and seemingly ever-changing rules.
If the new proposal is accepted, going forward, the primary test of whether a worker is an independent contractor will depend on a two-step inquiry regarding economic reality of the working relationship. The primary question would be: Is the worker economically dependent on the employer?
This economic reality test includes two core factors for determining whether a worker is economically dependent on the employer: (1) What is the nature of the work and degree of the employer’s control over the work?; and (2) what is the worker’s opportunity for profit and loss based on initiative or investment?
The rule would also identify other 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.
This test will apply only at the federal level. Employers should keep in mind that many states (including California) have entirely different and more liberal standards for determining whether a worker is an employee, and these state rules take precedence.
The proposed rule will be subject to public comment until April 28, 2026. In the meantime, employers should take this opportunity to check with employment counsel regarding their current classification of independent contractors to avoid potentially costly misclassification claims.
