March 11, 2026
In February 2026 the U.S. Department of Labor announced a new proposed rule that would replace the current test for determining whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA). The proposed test would also apply to the Family and Medical Leave Act and the Seasonal Agricultural Worker Protection Act. The proposed rule is substantially similar to a regulation adopted in 2021 under the Trump Administration.
The Current “Economic Realities” Test
The current “economic realities” test, adopted under the Biden Administration in 2024, looks to several factors to determine whether a worker is truly an employee or an independent contractor. These factors include:
- Opportunity for profit or loss depending on managerial skill;
- Investments by the worker and the employer;
- Permanence of the work relationship;
- The nature and degree of control over the work;
- Whether the work performed is integral to the employer’s business; and
- Skill and initiative.
Under this framework, all aspects of the working relationship are considered. If the worker is determined to be in business for themselves, the worker is classified as an independent contractor.
The Proposed “Two-Factor” Test
The proposed rule, referred to as the two “core-factor” test, elevates two factors above all others. Under the proposal, whether a worker is classified as an independent contractor or an employee would primarily depend on:
- The nature and degree of control over the work; and
- The worker’s opportunity for profit or loss based on initiative and/or investment.
Outside of these “core” factors, other considerations include: (a) the amount of skill required for the work; (b) the degree of permanence of the working relationship; and (c) whether the work is part of an integrated unit of production.
The Potential Impact on Employers
This new rule is widely anticipated as more employer-friendly because it provides a clearer path to categorizing workers as independent contractors. Unlike the current economic realities test, which treats all factors equally, the proposed rule prioritizes two primary considerations.
By focusing on fewer factors, the proposed rule may provide employers with greater predictability when evaluating worker classification. Because independent contractors are not entitled to federal minimum wage or overtime pay under the FLSA, the distinction is critical for compliance.
However, employers must still consider state-specific worker classification standards, particularly for remote or out-of-state workers. Even if the federal rule becomes more employer-friendly, some states apply more restrictive tests when determining worker status.
What’s Next?
The proposed rule is currently undergoing a mandatory 60-day public comment period, which is scheduled to close on April 28, 2026. We will continue to monitor developments and provide updates as the rulemaking process moves forward.
If you have questions about the proposed rule or how it may affect worker classification, please contact a member of HunterMaclean’s Employment Practice Group to discuss.
