The DOL wants to rewrite the contractor test, again. Your classification program shouldn’t swing with it.

Independent contractor rules under the Fair Labor Standards Act have changed with every recent administration. The 2021 rule narrowed the analysis to two "core factors." The 2024 rule replaced it with a six-factor, totality-of-the-circumstances test that pushed more workers toward employee status. On February 26, 2026, the Department of Labor proposed going back again.

What the 2026 proposal does

The proposed rule keeps the "economic reality" framing but gives two factors more weight than the others:

• Control. This covers the nature and degree of the worker's control over the work: setting their own schedule, choosing assignments, and working for others, including competitors.
• Opportunity for profit or loss. This asks whether the worker can make or lose money through their own initiative or investment.

Under the proposal, when both core factors point the same way, there's a substantial likelihood that's the correct classification. Secondary factors such as skill, permanence of the relationship, and whether the work is part of an integrated unit can still matter, but they rarely override the core two. The comment period closed on April 28, 2026. The Department received more than 16,500 comments.

A companion proposal on joint employment, published in April 2026 with comments due June 22, would set out when a business is a joint employer of another company's workers. That question sits at the center of every staffing, MSP, and EOR relationship.

What doesn't change

A lot of commentary on the proposal misses its scope. The federal rule is the Department's interpretation of the FLSA. It governs federal minimum wage, overtime, and recordkeeping claims. It does not govern:

• State wage-and-hour law. California's ABC test under AB 5, and the ABC or hybrid tests in New Jersey, Massachusetts, Illinois, and other states, apply regardless of which federal rule is in force. Prong B (work outside the usual course of the hiring entity's business) is still the most common failure point.
• Federal tax. The IRS applies its own common-law control test to employment-tax determinations.
• State unemployment and workers' compensation. Each state program has its own definition.
• Everywhere outside the US. This includes IR35 in the UK, Scheinselbstständigkeit in Germany, and the CLT presumption in Brazil.

For most enterprise programs with California or New Jersey headcount, the binding constraint was never the federal test.

Why "classify to the current federal rule" is the wrong design

A program that classifies to whatever federal standard is in force takes on three problems:

1. Every rule change means reclassifying. Each new rule requires a fresh review of the whole 1099 population, and courts may stay or vacate a final rule after it's issued.
2. The file is only as good as the date it was written. An auditor will ask what test you applied on the date of engagement and whether you documented it then. A determination made under a rule that has since been rescinded is weak evidence.
3. State and international exposure goes unmeasured. A classification that satisfies the federal core factors can still fail California's Prong B.

The jurisdiction-first alternative

Elevated Resources scores every engagement against every framework that could apply to it, and the strictest result governs. The frameworks include the IRS common-law factors, the applicable state ABC test, the current FLSA standard, and, for global engagements, IR35/CEST, Scheinselbstständigkeit, and CLT. In practice:

• A federal rule change moves one input in the 1099 Risk Scorecard. It doesn't move the overall result, because the result already reflects the strictest test that applies.
• Active engagements are re-scored monthly against the current facts. That catches drift in scope, duration, exclusivity, and integration before an auditor does.
• Borderline engagements are escalated to attorney review, with a written opinion where warranted. The evidence is dated, retained for seven years, and kept in an immutable document vault.

Five things to do before a final rule lands

1. Inventory your 1099 population by state and country of work performed, not by worker address or supplier location.
2. Identify which test actually binds each engagement. For most multi-state programs, that's a state ABC test.
3. Pull the classification file for your ten longest-running engagements. Check whether it's dated, whether it names the test applied, and whether counsel reviewed it.
4. Review supplier and MSA language on classification responsibility, indemnification, and audit rights.
5. Watch the joint-employment rule as closely as the contractor rule. For staffing and MSP programs, joint employment is often the larger exposure.

This article is general information about a proposed regulation, current as of its publication date. It is not legal advice. Rules in this area are subject to change and litigation. Consult counsel about your specific facts. Sources: U.S. Department of Labor proposed rules (February and April 2026) and summaries by Dechert LLP (June 2026) and SelfEmployed.com (August 2026)