On February 26, 2026, the United States Department of Labor (“DOL”) unveiled a highly anticipated proposed rule that could alter how businesses determine whether workers should be classified as employees or independent contractors. The DOL’s proposed rule would rescind and replace the current test (promulgated under the Biden administration) with a slightly modified version of the first Trump administration’s 2021 rule.
The Proposed Rule departs from the Current Rule’s approach, replacing the “totality of the circumstances” analysis with a framework that prioritizes two “core factors”:
1. Nature and Degree of Control. This factor examines whether the worker controls their own work schedule and assignments, and whether they have the ability to work for other parties.
2. Opportunity for Profit or Loss. This factor assesses whether the worker’s compensation reflects their own initiative or management – including managerial skill, business acumen, independent judgment, and self-investment.
The proposed rule is expected to significantly impact the construction industry, which has historically had a heavy reliance on specialized independent contractors. The classification of workers as employees or independent contractors carries significant implications for businesses. Independent contractors are generally not covered by minimum wage, overtime, benefits, and certain tax-related laws—protections that do apply to employees. Misclassifying a worker as an independent contractor when they should be classified as an employee can expose businesses to liability for unpaid wages, benefits, taxes, and other penalties.
While the Proposed Rule could make it easier to determine whether a worker is truly an independent contractor, the DOL’s emphasis on the parties’ “actual practice” could lead to future disputes in the event the parties’ working relationship is different than their contractual agreement.
It is also important to note that the Proposed Rule, if finalized, would not directly govern employee classification for purposes of state-specific employment laws, which may impose different or additional requirements.