DOL Proposes Rescinding 2024 Independent Contractor Rule, Restoring Trump-Era Two-Factor Test

The U.S. Department of Labor (DOL) has formally proposed rescinding its 2024 independent contractor rule, signaling a return to a more business-friendly framework for classifying workers. Published in the Federal Register in late February 2026, the Notice of Proposed Rulemaking seeks to replace the current six-factor "totality of the circumstances" test with a streamlined two-factor "economic reality" analysis. The shift is designed to provide clearer boundaries for companies engaging freelancers, consultants, and gig workers, reducing the legal ambiguity that has clouded contractor relationships over the past two years.[1][2]

At the center of the proposed framework are two core factors that carry the most weight in determining whether a worker is an employee or an independent contractor. The first is the nature and degree of control the worker has over their work, which examines whether the individual sets their own schedule, chooses their own methods, and operates without direct supervision.

The second core factor is the worker's opportunity for profit or loss based on their own initiative, managerial skill, or capital investment. If both factors point toward the same classification, the DOL states there is a "substantial likelihood" that the classification is accurate.[1][3][6]

The federal standard for worker classification has functioned as a regulatory pendulum over the past five years. In 2021, the Trump administration introduced a similar two-factor test, which the Biden administration subsequently delayed, withdrew, and replaced in 2024 with a broader six-factor analysis.

The 2024 rule gave equal weight to secondary factors like the permanence of the working relationship and whether the work was integral to the employer's business. Business groups consistently argued that the six-factor standard was overly ambiguous, skewed toward employee classification, and difficult to apply predictably in modern gig and freelance contexts.[2][4][5]

The transition back to the two-factor test has been underway in practice since May 2025, when the DOL issued a field assistance bulletin instructing its investigators to stop enforcing the 2024 rule. The new proposed rule seeks to codify that enforcement posture through formal rulemaking. Once finalized, it will officially align the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act under a single, unified analytical framework.[2][7]

A notable clarification in the 2026 proposal addresses how businesses manage quality and compliance without accidentally triggering an employment relationship. The DOL explicitly states that requiring a contractor to adhere to legal obligations, health and safety standards, insurance requirements, or contractual deadlines does not constitute the type of "control" indicative of employment. This specific provision addresses widespread industry concerns that the 2024 rule penalized companies for enforcing basic quality and safety expectations on their contracted workforce.[4][6]

The regulatory shift carries significant financial implications for the gig economy and businesses that rely on flexible labor models. According to an analysis by the U.S. Small Business Administration's Office of Advocacy, the proposal to rescind the 2024 rule is estimated to save small businesses approximately $2.31 billion over the next decade. This translates to roughly $329 million in annualized cost savings, driven primarily by reduced compliance burdens, lower administrative overhead, and a decreased risk of costly misclassification lawsuits.[3]

Beyond the core factors, the proposed rule still allows for the consideration of secondary elements—such as the amount of specialized skill required for the work, the degree of permanence in the working relationship, and whether the work is part of an integrated unit of production. However, unlike the 2024 rule, these secondary factors are explicitly subordinated to the two core pillars of control and profit opportunity. They are intended to serve as tie-breakers or supplementary guidance rather than co-equal determinants.[6][7]

Despite the federal easing, legal experts warn that the new rule does not provide blanket immunity for employers. The DOL's framework only applies to federal statutes. State laws remain independently enforceable, and several states—most notably California, Illinois, Massachusetts, and New Jersey—continue to apply the much stricter "ABC test."

Under the ABC standard, a worker is presumed to be an employee unless the business can prove the worker is free from control, performs work outside the usual course of the hiring entity's business, and is customarily engaged in an independently established trade.[2][7]

This divergence means that multi-state employers will increasingly face a dual-compliance landscape. A worker who is clearly classified as an independent contractor under the new federal two-factor test may still be deemed an employee under state law, exposing the hiring company to state-level penalties, unpaid payroll taxes, and back wage claims. Consequently, employment attorneys are advising companies that federal reclassification is only the first hurdle; state tests will ultimately determine actual liability in jurisdictions with stricter standards.[5][7]

The proposed rule underwent a mandatory 60-day public comment period that closed on April 28, 2026. The DOL is currently reviewing the submitted feedback, with a final rule expected to be published by late summer or early fall. Until the new regulation takes effect—typically 30 to 60 days after final publication—businesses are advised to audit their current contractor populations against both the incoming federal standard and applicable state laws to ensure their labor models remain defensible.[3][5][7]