On February 27, 2026, the Department of Labor’s (DOL) Wage and Hour Division issued a proposed rule that would rescind the analysis for determining employee or independent contractor status under the Fair Labor Standards Act (FLSA) and replace it with analysis that it published and adopted in a prior final rule dated January 7, 2021, with a few modifications. DOL also proposes to apply this analysis to the Migrant and Seasonal Agricultural Worker Protection Act, which incorporates the FLSA’s scope of employment.
Among other provisions, the proposed rule would include:
- A provision discussing the “economic reality” test for distinguishing FLSA employees from independent contractors, including that the ultimate inquiry of economic dependence turns on whether an individual is in business for him- or herself (independent contractor) or is economically dependent on an employer for work (employee) (DOL is additionally proposing to provide further context on the meaning of economic dependence); and
- Provisions describing factors examined as part of the economic reality test, including two core or primary factors—the nature and degree of the individual’s control over the work and the individual’s opportunity for profit or loss.
DOL said it welcomes comments on the inclusion of additional context on economic dependence into the regulations explaining that “economic dependence for work rather than economic dependence for income is the proper inquiry.” Specifically, DOL has added the following sentences to the end of the proposed § 795.105(b):
Though both employees and independent contractors are dependent on others in some sense, economic dependence in this context means the dependence that a typical employee has on an employer for work, as opposed to an individual who has more of the nature and character of a business owner who has a separate business. Economic dependence does not focus on the amount of income the worker earns, or whether the worker has other sources of income.
Comments on the proposed rule are due by April 28, 2026, via one of the methods provided in the notice.
