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On February 26, 2026, the Department of Labor (DOL) announced a proposed rule, “Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act” (see here). The proposal would replace the 2024 analysis for determining whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA).
Specifically, the proposed rule would return the analysis to a focused “economic reality” test looking at a worker’s economic dependency on a company, rejecting the 2024 “totality of the circumstances analysis.” The 2024 approach identified six factors to be weighed in determining a worker’s status but did not identify any core factors or assign any weight to the factors. Under the 2024 rule, no one factor was dispositive nor were the six factors exhaustive.
The DOL’s proposed rule identifies two core factors as the most probative for determining whether a worker is an economically dependent employee: (1) the nature and degree of control and (2) the worker’s opportunity for profit or loss. Greater worker control over key aspects of performance, such as setting schedules, selecting projects, or working for others, tends to support independent contractor status. Likewise, when a worker can realize profits or suffer losses based on initiative or by managing investments to further the work, those factors point toward independent contractor classification. Under the economic reality test, if both core factors point to the same classification of a worker, there is a substantial likelihood that the classification is accurate.
The economic reality test also identifies three other factors: (1) whether the work requires specialized skill, (2) the degree of permanence of the working relationship, and (3) whether the work is part of an integrated unit of production rather than merely “integral” to the business. The test, however, notes that these factors, either individually or collectively, are highly unlikely to outweigh the combined probative value of the two core factors.
Pietragallo will continue to monitor the proposed rule and how it may affect policies, workforce planning, and compensation in the employment space.