The U.S. Department of Labor (“DOL”) recently issued a long-anticipated Proposed Rule that would substantially revise the standards for determining whether workers qualify as employees or independent contractors under the Fair Labor Standards Act (“FLSA”), the Family and Medical Leave Act (“FMLA”) and the Migrant and Seasonal Agricultural Worker Protection Act (“MSPA”).
The Proposed Rule, introduced Feb. 26, 2026, would rescind and replace the Biden-era 2024 Rule, which applied a six-factor “totality of the circumstances” analysis that generally increased the likelihood of workers being classified as employees. In its place, the DOL proposes to restore the “economic reality” test established under the 2021 Rule, which took effect during the first Trump Administration, and expand its scope. This less restrictive standard is expected to make it easier for businesses to engage workers as independent contractors.
The Significance of Worker Misclassification
Under federal law, misclassifying employees as independent contractors exposes employers to significant legal and financial liability. These risks often result from good-faith mistakes or reliance on outdated classification standards, a challenge further compounded by frequent revisions to those standards from one presidential administration to the next.
Employees are entitled to a broad array of statutory protections and benefits that generally do not extend to independent contractors. For example, under the FLSA, non-exempt employees must receive at least the federal minimum wage, as well as overtime compensation, for hours worked over 40 in a workweek. Independent contractors, by contrast, are not covered by the FLSA, as they are “in business for themselves.” In addition, employees are subject to employer-withheld payroll taxes, while independent contractors bear full responsibility for managing and fulfilling their own tax obligations.
These distinctions represent only a small portion of the many differences in how federal law treats employees as compared to independent contractors. Moreover, state laws frequently provide employees with additional protections beyond those afforded under federal law. Therefore, it is critical employers remain informed about the Proposed Rule so, if it is adopted, they can apply the appropriate standards to determine whether a worker should be classified as an employee or an independent contractor. Proper classification is essential to reducing the risk of liability associated with worker misclassification.
The 2024 Rule
The Biden-era 2024 Rule, which took effect in March 2024, adopted a multifactor “totality of the circumstances” test to determine whether a worker should be classified as an employee or an independent contractor under the FLSA.
Specifically, the 2024 Rule evaluates six equally weighted factors, including:
- Opportunity for profit or loss depending on managerial skill;
- Investments by the worker and employer;
- Degree of permanence of the work relationship;
- The nature and degree of control the employer has over the worker’s performance;
- Extent to which the work performed is integral to the employer’s business; and
- Skill and initiative.
In addition, the 2024 Rule stated “additional factors may also be considered if they are relevant to the overall question of economic dependence.”
However, shortly after the 2024 Rule took effect, it came under significant scrutiny and was challenged in several federal lawsuits, as the application of the test resulted in more workers being classified as employees and made it substantially more difficult for businesses to classify workers as independent contractors.
On May 1, 2025, the DOL announced it would pause enforcement of the 2024 Rule, signaling that the agency was considering either revising the applicable test or rescinding the Rule altogether. Less than a year later, the DOL issued the new Proposed Rule.
The Proposed Rule
The Proposed Rule, which seeks to rescind and replace the Biden-era 2024 Rule, moves away from the employee-friendly six-factor “totality of the circumstances” test applied under the 2024 Rule. Instead, it largely returns to an approach that closely mirrors the 2021 Rule, applying a five-factor “economic reality” test.
Under this framework, the analysis focuses primarily on two “core” factors, which carry the greatest weight in the classification determination. These factors include:
- The nature and degree of control over the work, which examines who controls the work and to what extent; and
- The individual’s opportunity for profit or loss, which examines whether a worker can earn profits or suffer losses through their own independent effort and decision making.
Secondary factors to be considered include:
- The amount of skill required for the work, which examines whether the worker uses their own specialized skills together with business planning and effort to perform the work and support or grow a business.
- The degree of permanence of the relationship, which examines the nature and length of the work relationship.
- Whether the work is part of an integrated unit of production, which examines whether the worker is integrated into a production process.
The Proposed Rule would establish the same classification standards under the FLSA, FMLA and the MSPA.
Employer Takeaways
In light of the recent Proposed Rule, employers engaging independent contractors should closely monitor the DOL’s rulemaking process and remain aware the 2024 Rule technically remains in effect, even though the DOL has paused enforcement. The DOL is currently accepting public comments through April 28, 2026, after which the agency may revise the proposal before issuing a final rule.
Employers should also recognize the Proposed Rule would only apply to the federal FLSA, FMLA and MSPA, and would not affect other federal statutes or state laws governing worker classification. Importantly, many states maintain their own standards for determining whether a worker qualifies as an employee or an independent contractor. For example, Massachusetts and Connecticut apply the “ABC” test, while other states, such as New York, rely on varying classification standards depending on the applicable statute or industry.
Harris Beach Murtha’s Labor and Employment Practice Group attorneys are closely following these developments and related matters. Should you have questions, please reach out to attorney Salvatore G. Gangemi at (203) 653-5436 and sgangemi@harrisbeachmurtha.com; attorney Daniel J. Palermo; at (585) 419-8946 and dpalermo@harrisbeachmurtha.com; attorney Corey J. Butts at (585) 419-8612 and cbutts@harrisbeachmurtha.com; or the Harris Beach Murtha attorney with whom you most frequently work.
This alert is not a substitute for advice of counsel on specific legal issues.
Harris Beach Murtha’s lawyers and consultants practice from offices throughout Connecticut in Bantam, Hartford, New Haven and Stamford; New York State in Albany, Binghamton, Buffalo, Ithaca, New York City, Niagara Falls, Rochester, Saratoga Springs, Syracuse, Long Island and White Plains; as well as in Boston, Massachusetts, and Newark, New Jersey.