Five lawsuits, $682 million in savings, and a deadline HR can't miss
The Labor Department wants to tear up its own independent contractor rule and start over – and HR teams should pay close attention.
On February 27, 2026, the Department of Labor published a proposed rule that would rescind the 2024 framework for determining whether a worker is an employee or an independent contractor under the Fair Labor Standards Act. In its place, the Department wants to bring back a modified version of the analysis it adopted in January 2021, complete with a hierarchy of factors that the 2024 Rule deliberately abandoned.
The practical upshot for HR professionals is this: not all factors in the classification test would carry equal weight anymore.
Under the proposal, two "core" factors would sit at the top of the analysis – the degree of control over the work and the worker's opportunity for profit or loss. If both point in the same direction, the Department says there is a "substantial likelihood" that is the correct classification. Three other factors – the skill required, how permanent the relationship is, and whether the work fits into the employer's production process – would still be considered, but the Department describes them as "less probative" and says they are "highly unlikely" to override the two core factors when both agree.
The Department did not mince words about why it wants the 2024 Rule gone. It called the current framework too vague, too repetitive, and too likely to push employers into classifying genuine independent contractors as employees just to avoid legal risk. The Department pointed to overlapping language across the 2024 Rule's six factors, where nearly identical concepts like "managerial skill," "business-like initiative," and "independent business initiative" show up in the guidance for three different factors.
One change that will matter in practice involves how investment is evaluated. The 2024 Rule compares a worker's investment against the potential employer's investment in its overall business – a comparison the Department now says does not illuminate the worker's economic dependence or independence, because the employer's investment will almost always dwarf the worker's. The proposed rule would look only at the worker's own investment as part of the opportunity for profit or loss factor.
Another significant shift concerns the "integral part" test. The 2024 Rule asks whether the work is "critical, necessary, or central" to the employer's principal business. The proposed rule would instead ask whether the worker is part of the employer's integrated production process – a narrower question. The Department argued that under the current standard, virtually all work could be deemed "integral" because no business pays for work that is unnecessary.
The Department also wants to bring back a provision stating that actual practice matters more than what a contract says is possible. If a worker technically has the right to work for competitors but cannot do so as a practical matter, the contract language counts for less. The 2024 Rule dropped this provision; the Department says that removal produced uncertainty among stakeholders.
For FMLA compliance teams, there is an additional wrinkle. The proposed rule would apply the same classification analysis across the FLSA, the FMLA, and the Migrant and Seasonal Agricultural Worker Protection Act, creating one uniform test. The Department also wants to delete FMLA regulatory language suggesting that "mere knowledge" of work performed is enough to create an employment relationship, concerned it could conflict with the multi-factor analysis.
The economic projections are notable. The Department estimates annual cost savings of $682.7 million from increased clarity, against one-time familiarization costs of $488.2 million. It projects that 250,000 to 750,000 new independent contractor arrangements could emerge – not from reclassifying current employees, but from new workers entering the labor force.
Five federal lawsuits challenging the 2024 Rule remain pending, all stayed while the Department pursues this rulemaking. Since May 2025, the Department's enforcement arm has already stopped applying the 2024 Rule in its own investigations, reverting to earlier guidance.
The comment period closes April 28, 2026. The proposed rule is not final and no changes take effect until a final rule is published. HR leaders who want a say in how the test ultimately reads have a narrow window to weigh in.
