In late February 2026, the U.S. Department of Labor (“DOL”) announced a proposed rule that would reinstate the first Trump Administration’s “core factor” analysis for distinguishing between employees and independent contractors and rescinds the Biden Administration’s 2024 worker classification framework. The two “core” factors emphasized in the proposed rule are:
(1) the worker’s opportunity for profit and loss and
(2) the nature and degree of the worker’s control over the work.
Accurately distinguishing between employees and independent contractors is crucial, as only employees are entitled to minimum wage and overtime protections under the Fair Labor Standards Act. If finalized, the DOL’s proposed rule will ideally bring more clarity as to which workers can be properly classified as independent contractors.
The First Trump Administration’s 2021 Rule: “Core Factors” Analysis
In early 2021 the DOL published a rule for determining whether workers are employees or independent contractors (“2021 Rule”). Although this analysis has historically included consideration of a variety of different factors, the 2021 Rule afforded primary weight to two “core” factors:
(1) the nature and degree of control over the work, and
(2) the individual’s opportunity for profit or loss based on initiative and/or investment.
The DOL believed these two factors were the most indicative of whether a worker was an employee or a contractor.
The 2021 Rule further identified three secondary factors that can be used as guideposts in the analysis:
(1) the amount of skill required for the work;
(2) the degree of permanence of the working relationship between the individual and the potential employer; and
(3) whether the work is part of an integrated unit of production.
The DOL stated that these secondary factors were highly unlikely to outweigh the combined probative value of the “core” factors.
The 2021 Rule’s effective date was March 8, 2021. However, due to a change in administration, the 2021 Rule never went into effect.
The Biden Administration’s 2024 Rule: Totality-of-the-Circumstances Analysis
During the Biden Administration, the DOL ultimately withdrew the 2021 Rule and published its own rule on January 10, 2024 (“2024 Rule”). The 2024 Rule adopted an economic reality test that included consideration of six factors. No single factor is dispositive, and the weight afforded to each depends on the circumstances.
The 2024 Rule took effect on March 11, 2024.
Proposed Rule: Return to the “Core Factors” Analysis
In May 2025, under Trump, the DOL stated it would no longer enforce the 2024 Rule. On February 27, 2026, the DOL published its proposed rule in the Federal Register. The proposed rule, if finalized, would rescind the 2024 Rule and reinstate the first Trump administration’s 2021 Rule with minor changes. It also would revise regulations under the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act so that the “core factor” analysis also applies when determining worker classifications under those statutes.
The DOL explained that the “principal flaw” of the 2024 Rule is “its failure to provide effective guidance on how different factors in its multi-factor balancing test should be weighed or applied together” and that lack of clarity could be viewed as “more restrictive of independent contracting that the law requires.” The DOL elaborated that the ultimate inquiry in determining whether a worker is an employee is whether the worker is “economically dependent” on their employer and the two core factors – control and opportunity for profit or loss – are the most indicative of economic dependence (or lack thereof). The DOL proposes that three other factors –skill, permanence and whether the work is part of an integrated unit of production – serve as additional guideposts but, ultimately, are less probative than the two core factors.
The public comment period will last until April 28, 2026.
Effects on Employers
If finalized, the proposed rule would likely make it easier for employers to classify their workers. Ideally, focusing on two primary factors will provide more clarity on worker classification.
It is important for employers to remember that the proposed rule would only revise the worker classification test under federal law. Several states use different and sometimes stricter tests for worker classification (such as California’s “ABC” test).
Lastly, courts are no longer required to defer to DOL interpretations of ambiguous statutes in the wake of the Supreme Court’s Loper Bright Enterprises v. Raimondo decision in 2024. Accordingly, even if the proposed rule is finalized, courts may ultimately apply their own standards in resolving worker-classification disputes.
If you have any questions about how this proposed rule may affect your organization, please reach out to your Dinsmore labor and employment attorney.