DOL Proposes to Roll Back 2024 Independent Contractor Rule

Sharon Kreider, CPA

The Department of Labor (DOL) has published a Notice of Proposed Rulemaking (NPRM) that would rescind its 2024 independent contractor rule and largely restore the framework established under the 2021 rule. For businesses that engage independent contractors — and for the contractors themselves — this proposed change has real practical implications.

Background: A Rule That Keeps Changing

Determining whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA) has been a moving target in recent years:

March 2021 — The Trump administration’s final rule introduced a streamlined “economic reality” test with two “core” factors: (1) the nature and degree of control over the work, and (2) the worker’s opportunity for profit or loss.
March 2024 — The Biden administration replaced the 2021 rule with a broader six-factor test that gave no factor elevated weight, relying instead on a “totality of the circumstances” analysis.
May 2025 — The DOL issued Field Assistance Bulletin 2025-1, announcing it would no longer apply the 2024 rule in enforcement actions, reverting to pre-2024 guidance.
Current NPRM — The DOL now proposes formally rescinding the 2024 rule and readopting the 2021 rule framework with modest modifications.

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What Changes Under the Proposed Rule?

The proposed rule reinstates two “core” factors that carry greater weight than all others in the analysis:

Control over the work — Does the worker set their own schedule, choose their projects, and retain the ability to work for others (including competitors)?
Opportunity for profit or loss — Can the worker meaningfully increase earnings through initiative, business judgment, or investment in equipment and helpers?

If both core factors point in the same direction, there is a “substantial likelihood” that classification is correct. Three secondary factors — skill required, permanence of the relationship, and whether the work is part of an integrated unit of production — remain relevant but are explicitly less probative.

The proposal also restores the “primacy of actual practice” provision: what the parties actually do matters more than what a contract says is theoretically possible.

What Should Businesses Do Now?

The 2024 rule technically remains in effect for private litigation (the DOL just isn’t enforcing it currently). Once the proposed rule is finalized, the 2021 framework will formally govern. Businesses should:

Review existing independent contractor agreements against the two core factors — control and profit/loss opportunity.
Ensure actual practices align with contract terms. A contract saying a worker “can” work for others means little if practical constraints prevent it.
Avoid over-relying on investment comparisons — the proposed rule eliminates the 2024 rule’s requirement to compare worker investment to employer investment.
Note that state law may impose stricter standards (e.g., California’s ABC test) regardless of federal rule changes.

Federal Tax Classification Reminder

FLSA classification under the economic reality test is distinct from federal tax classification under the common law control test applied by the IRS (using the behavioral control, financial control, and type-of-relationship framework of Rev. Rul. 87-41 and Publication 15-A). A worker can potentially be an independent contractor under the FLSA while being an employee for tax purposes, or vice versa. Advisors should analyze both tests independently. Nothing is easy until or unless IRS and FLSA agree on definitions.

Comments on the proposed rule are open. The final rule is expected later in 2026.