WASHINGTON — The U.S. Department of Labor has proposed a new rule aimed at clarifying when a worker qualifies as an employee versus an independent contractor under federal wage and hour laws.
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Announced by the department’s Wage and Hour Division, the proposal would rescind the agency’s 2024 final rule on independent contractor classification and replace it with an approach similar to guidance issued in 2021. Officials said the revision is intended to align with longstanding U.S. Supreme Court and federal circuit court precedent.
The rule would apply to the Fair Labor Standards Act and extend to related statutes that use the same definition of “employ,” including the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act.
Under the proposal, the department would use an “economic reality” test to determine whether a worker is economically dependent on an employer — and therefore an employee — or operates independently in business for themselves.
The analysis centers on two “core factors”:
Additional considerations would include the level of skill required, the permanence of the working relationship and whether the work performed is part of an integrated production process.
The proposed rule also emphasizes that actual working relationships carry more weight than contractual language or theoretical arrangements.
To guide compliance, the department included eight fact-specific examples illustrating how the factors would apply in real-world scenarios.
Secretary of Labor Lori Chavez-DeRemer said the proposal is designed to protect independent contractors’ flexibility while maintaining employee protections under federal law.
“The tens of millions of Americans who work as independent contractors are helping drive the Golden Age of the American economy,” Chavez-DeRemer said. “The department’s proposed rule seeks to protect these workers’ entrepreneurial spirit and simplify compliance for American job creators navigating a modern workplace.”
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Wage and Hour Division Administrator Andrew Rogers said the streamlined approach is intended to reduce worker misclassification and costly litigation.
The proposed rule is open for public comment for 60 days, with the comment period closing at 11:59 p.m. ET on April 28, 2026.
Workers and employers seeking compliance assistance may contact the Wage and Hour Division’s toll-free helpline at 866-4US-WAGE (487-9243). The division’s PAID program also allows employers to self-report and resolve potential minimum wage and overtime violations under federal law.
If finalized, the rule would mark another shift in federal policy governing how businesses classify workers in an evolving labor market.
Originally reported by Construction Citizen.
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