The U.S. Department of Labor (DOL) recently announced a proposed independent contractor rule rescinding their 2024 rule and returning the federal independent contractor analysis to something very similar to the prior standard adopted in 2021. The proposed rule’s 60-day comment period closes on April 28, 2026.
As previously reported, the DOL’s current independent contractor rule has been in effect since March 11, 2024. The 2024 rule is a multi-factor “totality of the circumstances” test to determine whether a worker is an employee or an independent contractor under the federal Fair Labor Standards Act (FLSA). The test weighs the following six key factors:
- Degree to which the potential employer controls the work;
- Worker’s profit or loss opportunity;
- Worker’s and potential employer’s investments in equipment and materials;
- Degree of permanence of the work relationship;
- Worker’s skill level; and
- Extent to which the work is an integral part of the potential employer’s business.
At the time the rule was adopted, the DOL, under then-President Biden, asserted that the rule aligned with contemporary economic realities and offered better protection for workers. But on May 1, 2025, as previously reported, the DOL issued a field assistance bulletin stating it would not enforce the 2024 independent contractor rule and that it would consider rescinding it.
And now, the DOL is doing just that. This proposed final rule rescinds the 2024 rule and replaces it with a modified version of the 2021 rule adopted during President Trump’s first term. Under the proposed rule, a worker is an employee if they are “economically dependent on the employer for work.” The rule lists several factors to determine if the individual is economically dependent on the employer, but unlike the 2024 rule, which doesn’t prioritize any one factor, the proposed rule identifies two core factors above the others:
- The nature and degree of control over the work; and
- The worker’s opportunity for profit or loss.
Other factors for consideration include:
- The amount of skill required for the work;
- The degree of permanence of the working relationship between the individual and the potential employer;
- Whether the work is part of an integrated unit of production; and
- Additional factors indicating whether the individual is in business for themselves as opposed to economically dependent on the employer for work.
For California employers, this proposed federal rule doesn’t change the independent contractor analysis because California applies a stricter test for determining employment status. Under California’s ABC test, an individual is presumed to be an employee unless the hiring entity demonstrates each of the following criteria:
- That the worker is free from control and direction of the hiring entity in connection with the performance of the work;
- That the worker performs work that is outside the usual course of the hiring entity’s business; and
- That the worker is engaged in an independent business of the same nature as the work performed for the hiring entity.
While the new rule won’t replace California’s ABC test, it may affect businesses with employees outside of California. As such, multi-state employers should review the proposed rule and consult with legal counsel about its potential impact on their existing workforce and future worker classification procedures. Employers may submit comments on the proposed rule through April 28, 2026.
James W. Ward, J.D., Employment Law Subject Matter Expert/Legal Writer and Editor, CalChamber
CalChamber members can read more about Independent Contractors in the HR Library. Not a member yet? See how CalChamber can help you.
