The classification of workers as employees or independent contractors is incredibly important to businesses. Employment protection laws do not apply to independent contractors, nor do payroll taxes need to be paid on their work. Much of the recent litigation in this area has focused on app-connected transportation companies, but virtually every company uses independent contractors of some type.
There have been many changes to independent contractor rules over the years, with one rule issued by President Trump’s first administration in 2021, and a second rule issued by President Biden’s administration in 2024, and now the current proposed rule. The main differences are that President Trump’s first administration rule prioritized the factors of control over work and opportunity for profit or loss in determining whether a worker was an employee or an independent contractor. In contrast, President Biden’s rule seems to rely not on two core factors but six factors to be used as “tools or guides to conduct a totality-of-the-circumstances analysis:”
Opportunity for Profit or Loss depending on managerial skill, investments by the worker and the potential employer, the degree of permanence of the work relationship, the nature and degree of control, the extent to which the work performed is an integral part of the potential employer’s business, and skill and initiative.
The current proposed rule goes back to many of the concepts of the 2021 rule, particularly the nature and degree of control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment. This would be deemed the two core factors, but the other factors would remain relevant.
The proposal states that in applying the test, actual practice matters more than what is merely contractual. In evaluating the control factor, the Department of Labor (DOL) rejects the previous guidance that a business’s imposition of quality standards, and health, safety and insurance requirements upon the worker, is the type of control that is indicative of an employment relationship. The proposed rule also places greater emphasis on whether the worker can realize profits or losses through managerial skills. In evaluating the permanence factor, the current rule conditions a finding of independent contractor status on the worker “being in business for themself and marketing their services or labor to multiple entities,” and discounts impermanence that is merely “intrinsic to particular businesses or industries.” In evaluating the integral part factor, the standard examines whether the worker is located within the business’s production process rather than providing an outside service.
Employers should note that, until a final rule is adopted, the 2024 rule remains operative. At the same time, DOL has already altered its enforcement posture. However, this posture expressly states that the 2024 remains in effect for purposes of private litigation not involving the DOL.
The proposed rule extends its application to the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).
Traditionally, as well as currently, the standard of control relates to whether the company controls the manner and means of how workers perform, as opposed to only the result of the work. The second part of the core analysis pertains to a genuine opportunity for profit or loss based on the exercise of managerial skill.
This article is part of our April 2026 Newsletter.
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