Independent Contractor Classification Rules: Another Change on the Horizon?

The rules for classifying workers as employees or independent contractors under the Fair Labor Standards Act (FLSA) have shifted repeatedly in recent years — and another change may be coming.

Why This Matters

Getting worker classification right is more complicated than it appears. Misclassifying a worker can harm employees by depriving them of overtime pay, minimum wage protections, and benefits. For employers, it can mean significant legal and financial liability. Because the rules have changed in 2021 and again in 2024, staying current is essential.

What Is Being Proposed

In February 2026, the U.S. Department of Labor issued a Notice of Proposed Rulemaking to rescind the 2024 rule and replace it with a simpler framework. The proposed analysis would use the “economic reality” test — asking whether a worker is truly in business for themselves or is economically dependent on the employer.

Under the proposal, two core factors would drive the analysis:

1. The nature and degree of control over the work
2. The worker’s opportunity for profit or loss based on initiative or investment

Three or more additional factors may come into play:

1. The level of skill required
2. The permanence of the working relationship — an impermanent work arrangement is indicative of independent contractor status only if the worker is in business for themselves
3. Whether the work is part of an integrated unit of production — that is, whether the work is critical, necessary, or central to the potential employer's principal business

Where Things Stand Now

The comment period has closed, but the proposed rule is not yet in effect. Until it is finalized, the March 2024 FLSA rule remains in force. That rule requires analysis of both the "economic reality test," along with six separate factors.

Employers should monitor this development closely, as any change may affect how workers are classified. If the proposed rule does take effect, employers should review their current worker classifications to ensure they remain compliant with the new standard.

At Henningson & Snoxell, we help employers stay informed about developments like this. Please reach out with any questions about worker classification.