A proposed rule would restore a clearer, two-factor test and extend it to new laws for the first time. Here’s what HR needs to know.
If your company engages independent contractors, the Department of Labor (DOL) just removed a significant source of confusion. On February 27, 2026, DOL released a proposed rule that would replace the Biden administration’s 2024 contractor classification standard with a more straightforward, employer-friendly approach. In short: the agency is restoring the structured, two-factor framework from 2021, with a few important additions.
The new framework: Two factors do the heavy lifting
At the core of the proposed rule sits the long-standing “economic realities” test : the fundamental question of whether a worker is genuinely operating their own business or is functionally reliant on your organization for work. What the proposed rule changes is the method for answering that question.
Under the proposed rule, two factors carry the most weight:
- Control: How much authority does the worker have over how, when, and where the work is performed?
- Profit or loss opportunity: Does the worker have a real chance to earn more, or absorb losses, based on their own decisions and financial investment?
When both factors point toward the same classification, DOL considers there to be a strong likelihood that the determination is sound. Three secondary factors, the skill level the work demands, the permanence of the working relationship, and whether the work is integral to your business, can contribute to the analysis, but are unlikely to outweigh the two primary ones.
The rule also introduces a useful clarification: economic dependence means dependence on the employer for work, not dependence on the income that work generates. A worker who receives the bulk of their earnings from your organization but operates with genuine independence may still legitimately qualify as an independent contractor.
What’s actually new: The FMLA and MSPA extension
While much of the proposed rule covers familiar territory, one component has no precedent: for the first time, the DOL is formally applying contractor classification standards to determinations under the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). There was previously no codified federal rule addressing how to classify workers specifically for FMLA purposes.
This proposal closes that gap, and for organizations operating in industries that depend on seasonal or agricultural workers, the MSPA extension warrants careful review with employment counsel.
What HR teams should do right now
The rule hasn’t been finalized, but organizations that wait for that to happen will already be behind. Here’s where to focus:
- Audit your contractor relationships. Run your current arrangements through the proposed two-factor framework. If your organization adjusted its practices in response to the 2024 rule, take a hard look at whether those changes are still necessary or whether they’ve introduced friction that no longer serves a purpose.
- Don’t treat federal compliance as the finish line. States like California, New Jersey, and Massachusetts apply considerably stricter classification tests, and those standards aren’t changing. State agencies administering workers’ compensation and unemployment insurance commonly apply their own criteria as well.
- Bring in legal, finance, and tax early. IRS and NLRB each operate under independent classification standards that this rule doesn’t alter. A worker who satisfies the DOL’s test could still be treated as an employee under a separate federal framework.
- Get your managers up to speed. People who work directly alongside contractors can unintentionally create indicators of employment — setting fixed schedules, supplying equipment, requiring exclusivity — without understanding the classification exposure they’re creating.
- Keep your reasoning documented. Whatever classification decision you reach, maintain clear written records explaining why. That documentation is your most reliable protection if a classification is ever challenged.
Bottom line
This rule is a positive development for employers, but it’s also a reminder that federal classification standards have now reversed course more than once within a single decade. The organizations that weather these shifts most effectively are the ones with disciplined internal practices: written classification rationale, consistent legal review, and managers who actually understand what the rules require.
DOL is accepting public comments through April 28, 2026. If this proposal touches how your workforce is structured, that window may be worth using.
This article is for informational purposes only and does not constitute legal advice. Members are encouraged to consult with qualified employment counsel regarding their specific workforce arrangements.
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