Hunton Employment & Labor Perspectives

On February 26, 2026, the U.S. Department of Labor (DOL) Wage and Hour Division proposed a new rule to determine whether workers are independent contractors or employees under federal wage-and-hour laws.

The new rule proposes to rescind the 2024 Biden-era rule and replace it with one similar to the rule adopted in 2020. Essentially, the new rule seeks to revert back to the five-factor “economic reality” test set forth in the 2021 Rule, with minor adjustments.

Proposed New Rule

The proposed new rule utilizes five factors to determine whether a worker is an independent contractor or an employee, but weighs two “core factors” greater than the remaining factors.

The two “core factors” include:

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

Three additional factors to consider are:

• The amount of skill required for the work,
• The degree of permanence of the working relationship, and
• Whether the work is part of an integrated unit of production.

In practice, the two core factors carry the greatest weight and are the most probative in classifying a worker. When both core factors lead to the same classification, there is a “substantial likelihood” that it is the correct classification. The remaining three factors offer additional insight, but have less weight in the overall determination. Additionally, the rule advises that the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.

How Did We Get Here?

• The 2021 Rule established the DOL’s first practical regulatory guidance for worker classification.
  • The rule set forth five factors to determine a worker’s classification. The first two factors are “core factors” with greater weight than the others. If these two factors point towards the same classification, there is a “substantial likelihood” that it is the correct classification.
• The 2024 Rule rescinded the 2021 Rule and replaced it with a totality-of-the-circumstances analysis.
  • The rule includes six factors that can all impact the determination. The rule contains no core factors, and no factor is considered more important or weighed more heavily than the other factors.
• In May 2025, the DOL announced that it would no longer enforce the 2024 Rule and would revert back to Fact Sheet #13.
• The DOL’s proposed new rule reverts back to the 2021 Rule, with some modifications.

Employer Implications

To properly comply with federal labor laws, employers must first properly classify their workers. Accurate classification is critically important for employers. Overall, the DOL’s new proposed rule provides a clearer, more predictable method for employers in classifying their workers. Instead of creating new criteria, the rule reverts back to familiar factors, and the rule provides guidance on how to apply the factors.

The proposed rule is not yet finalized, but employers can take action now:

• Review and Assess Current Classifications: Employers should review current worker classifications and consider how the new rule may impact certain classifications. By readopting the “core factors,” some worker classifications may change. Under the 2024 Rule, each of the six factors were given equal weight in classifying a worker. By contrast, under the new proposed rule, the factors of control and opportunity are given the most weight. In fact, if both of these factors point towards the same classification, the analysis ends. It is important for employers to understand how the mechanics of the new rule differ from the 2024 Rule and may impact some classifications.
• Consider Updating Policies: Employers should review their policies, handbooks, trainings, and other materials and identify where updates will be needed in light of the new rule.
• State Laws: Employers should confirm compliance with any applicable state laws. Many states apply their own worker classification tests and standards and employers need to heed those deviations, which can be more stringent than their federal counterparts.

The DOL is accepting comments on the proposed rule through April 28, 2026.