On February 26, 2026, the U.S. Department of Labor (DOL) issued a proposed rule that would make it easier for employers to classify certain workers as independent contractors rather than employees for purposes of federal wage and hour laws (FLSA) and the Family and Medical Leave Act (FMLA). In a change from the current approach, the proposed rule emphasizes an “economic realities” test focusing on whether the worker is operating their own business or is dependent on the employer for work. The DOL frames the change as a chance to streamline the analysis, focusing first on two “core factors” to help determine if a worker is economically dependent on an employer for work or is in business for themself: (a) the nature and degree of control over the work; and (b) the worker’s opportunity for profit or loss based on initiative and/or investment.

If the core factors are not definitive, the analysis would then consider “other factors,” including the amount of skill required for the work, degree of permanence of the working relationship, and whether the work is part of an integrated unit of production in the employer’s business. The proposed rule emphasizes that the parties’ actual practice is more relevant than what may be contractually or theoretically possible. The proposed rule also includes eight fact-specific examples to help parties understand how the analysis could work.

The distinction between an independent contractor and an employee is key for purposes of applying a number of federal laws. The FLSA generally requires employers to pay employees a minimum hourly wage for their compensable work hours, and to pay nonexempt employees one-and-one-half times their regular hourly rate for hours worked over 40 in a week. Independent contractors are not covered by the FLSA. The federal FMLA requires covered employers to provide eligible employees with up to 12 weeks of protected, unpaid leave from work for qualifying reasons, and prohibits employers from interfering with employees’ exercise of their rights under the law. Employers have no duty to provide independent contractors with any FMLA leave.

The DOL is soliciting comments on the proposed rule from interested parties within 60 days of publication. Comments are due by 11:58 p.m. EDT on April 28, 2026. After this, the DOL will review the comments, and then publish a final rule which takes effect and is enforceable 30 days thereafter; until then, the 2024 standard remains in effect. We will continue to keep you apprised of its status.

Employers should keep in mind that state laws also apply on this issue and should ensure compliance with state law, as well.

The attorneys and HR professionals at Lake Effect can provide guidance on employment-related agency and legislative actions, employment laws, regulations, and agency guidelines. We continue to monitor important legal and HR developments, as well as other information that could impact the workplace. Please watch our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at info@le-hrlaw.com or 1-844-333-5253.