On February 27, 2026, the U.S. Department of Labor (“DOL”) published a notice of proposed rulemaking (“NPRM”) defining the term “employee” for purposes of the Fair Labor Standards Act of 1938 (“FLSA”).[1] The NPRM affirms that the FLSA does not require an employer to pay an independent contractor either the minimum wage or overtime pay or to keep records regarding an independent contractor’s activities.
The 2026 proposed regulations are substantially the same as the final regulations issued in 2021 by the Trump Administration, which were replaced by regulations issued in 2024 by the Biden Administration. If finalized, these proposed regulations will replace the 2024 regulations.
Comments on the proposed regulations are due on or before April 28, 2026.
The NPRM sets forth an iteration of the “economic realities” test for determining worker status for purposes of the FLSA consisting of five factors, two of which are deemed “core” factors, to which greater weight is accorded. The NPRM’s descriptions of the five factors are identical to the descriptions contained in the 2021 version.
The only new language in the NPRM describing the proposed five-factor test (relative to the 2021 version) is contained in a general explanation of the test. The new language states:
Though both employees and independent contractors are dependent on others in some sense, economic dependence in this context means the dependence that a typical employee has on an employer for work, as opposed to an individual who has more of the nature and character of a business owner who has a separate business. Economic dependence does not focus on the amount of income the worker earns, or whether the worker has other sources of income.
DOL describes a guiding principle under the FLSA that an individual is an “employee” of an employer if, as a matter of economic reality, the individual is economically dependent on that employer for work. An individual is an independent contractor if the individual is, as a matter of economic reality, in business for him- or herself.
Determining An Individual’s Status Under the FLSA
The proposed five factors are not exhaustive, according to the NPRM, and no single factor is dispositive. But the two “core factors” are the most probative as to whether an individual is an economically dependent “employee” and carry greater weight in the analysis than any other factor.
If both core factors point towards the same classification – whether employee or independent contractor – there is a “substantial likelihood” that is the individual’s accurate classification. DOL notes that the other factors are less probative and, in some cases, may not be probative at all, and thus are highly unlikely, either individually or collectively, to outweigh the combined probative value of the two core factors.
The Two Core Factors
(i) The nature and degree of control over the work.
This factor weighs towards independent contractor status to the extent an individual exercises substantial control over key aspects of the performance of the work, such as:
- by setting his or her own schedule,
- by selecting his or her projects, and/or
- through the ability to work for others, which might include the employer’s competitors.
This factor weighs in favor of employee status to the extent the employer exercises substantial control over key aspects of the performance of the work, such as:
- by controlling the individual’s schedule or workload, and/or
- by directly or indirectly requiring the individual to work exclusively for the employer.
Features of a relationship characterized as neutral include requiring an individual to:
- comply with specific legal obligations,
- satisfy health and safety standards,
- carry insurance,
- meet contractually agreed-upon deadlines or quality control standards, or
- satisfy other similar terms that are typical of contractual relationships between businesses (as opposed to employment relationships).
(ii) The individual’s opportunity for profit or loss.
This factor weighs towards independent contractor status to the extent an individual has an opportunity to earn profits or incur losses based on his or her:
- exercise of initiative (such as managerial skill or business acumen or judgment) or
- management of his or her investment in or capital expenditure on, for example, helpers or equipment or material to further his or her work.
An individual does not need to have an opportunity for profit or loss based on both the individual’s exercise of initiative and management of investment for this factor to weigh towards the individual being an independent contractor.
This factor weighs towards employee status to the extent an individual is unable to affect his or her earnings or is only able to do so by working more hours or faster.
The Other Factors
(i) The amount of skill required for the work.
This factor weighs in favor of independent contractor status to the extent the work at issue requires specialized training or skill that the employer does not provide.
This factor weighs in favor of employee status to the extent the work at issue requires no specialized training or skill and/or the individual is dependent upon the employer to equip him or her with any skills or training necessary to perform the job.
(ii) The degree of permanence of the working relationship between the individual and the employer.
This factor weighs in favor of independent contractor status to the extent the work relationship is by design definite in duration or sporadic, which may include regularly occurring fixed periods of work, although the seasonal nature of work by itself would not necessarily indicate independent contractor classification.
This factor weighs in favor of employee status to the extent the work relationship is by design indefinite in duration or continuous.
(iii) Whether the work is part of an integrated unit of production.
This factor weighs in favor of independent contractor status to the extent an individual’s work is segregable from the employer’s production process.
This factor weighs in favor of employee status to the extent an individual’s work is a component of the employer’s integrated production process for a good or service. This factor is different from the concept of the importance or centrality of the individual’s work to the employer’s business.
(iv) Additional factors.
Additional factors may be relevant in determining an individual’s status, but only if the factors in some way indicate whether the individual is in business for him- or herself, as opposed to being economically dependent on the employer for work.
Applying the Five Factor Analysis
For purposes of applying the foregoing factors, the NPRM explains that in evaluating an individual’s economic dependence on an employer, the actual practice of the parties involved is more relevant than what may be contractually or theoretically possible.
For example, an individual’s theoretical abilities to negotiate prices or to work for competing businesses are less meaningful if, as a practical matter, the individual is prevented from exercising such rights. Likewise, a business’ contractual authority to supervise or discipline an individual may be of little relevance if in practice the business never exercises such authority.
Examples
The NPRM contains examples of the application of the proposed five-factor test. Some are identical to the examples contained in the 2021 Trump regulations while others are modified relative to the 2021 regulation and still others are new. Each is set forth below.
(Revised Relative to the 2021 Trump Regulations) (1)(i) Example. An individual is the owner and operator of a tractor-trailer and performs transportation services for a logistics company. The owner-operator substantially controls the key aspects of the work. However, the logistics company requires the owner-operator to comply with federally-mandated transportation safety rules requiring drug and alcohol testing. The company also requires the owner-operator to meet certain contractually agreed-upon delivery deadlines, and her contract includes agreed-upon incentives for meeting, and penalties for missing, the deadlines.
(ii) Application. The owner-operator exercises substantial control over key aspects of her work, indicating independent contractor status. The fact that the company requires the owner-operator to complete certain drug and alcohol testing does not change the above conclusion. This measure is implemented in order to comply with specific legal obligations and to ensure safety, and thus under § 795.105(d)(1)(i) would not constitute control that makes the owner-operator more or less likely to be an employee under the Act. The contractually agreed-upon delivery deadlines, incentives, and penalties are typical of contractual relationships between businesses and likewise would not constitute control that makes the owner-operator more or less likely to be an employee under the Act.
(2)(i) Example. An individual accepts assignments from a company that provides an app-based service linking those who need home-repair work with those who perform home-repair work. The individual is able to meaningful increase his earnings by exercising initiative and business acumen and by investing in his own equipment. The company, however, has invested millions of dollars in developing and maintaining the app, marketing itself, maintaining the security of information submitted by actual and prospective customers and workers, and monitoring customer satisfaction with the work performed.
(ii) Application. The opportunity for profit or loss factor favors independent contractor status for the individual, despite the substantial difference in the monetary value of the investments made by each party. While the company may have invested substantially more in its business, the value of that investment is not relevant in determining whether the individual has a meaningful opportunity for profit or loss through his initiative, investment, or both.
(3)(i) Example. An individual worker works full time performing home renovation and repair services for a residential construction company. She is also the part owner of a food truck, which she operates on weekends. In performing the construction work, the worker is paid a fixed hourly rate, and the company determines how many and which tasks she performs. Her food truck recently became very popular and has generated substantial profits for her.
(ii) Application. With regard to the construction work, the worker does not have a meaningful opportunity for profit or loss based on her exercise of initiative or investment, indicating employee status. She is unable to profit, i.e., increase her earnings, by exercising initiative or managing investments because she is paid a fixed hourly rate and the company determines the assignment of work. While she earns substantial profits through her food truck, that is a separate business from her work in the construction industry, and therefore is not relevant to the question of whether she is an employee of the construction company or in business for herself in the construction industry.
(New Example) (4)(i) Example. An individual worker works for a commercial construction company and is assigned to the crew that installs roofs on buildings. The company required no roofing skills when he started working for it, and he had no roofing skills when he started. Over his time working for the company, the individual has developed skills through on-the-job experience and training provided by the company.
(ii) Application. The work performed by this individual requires no specialized training or skill, and the individual relies on the construction company to provide any training necessary to perform the work. Accordingly, the skill factor weighs in favor of the individual being an employee. The fact that the individual has developed skills over his time at the company does not change that outcome because those skills resulted from on-the-job experience and training provided by the company.
(New Example) (5)(i) Example. An individual performs roofing work for a commercial construction company. He has specialized training in roofing and relies on his own skills to perform the work. The construction company provides him with no training and hired him based on his roofing skills and expertise. The individual touted his roofing skills when securing roofing work from the company and similarly relies on those skills when seeking work from other companies.
(ii) Application. This individual brings his own skills to the work and does not rely on the construction company to provide training. Accordingly, the skill factor weighs in favor of the individual being an independent contractor. The fact that the individual used his specialized skills to secure the work would not be considered under this factor, although it could be indicative of initiative to consider under the opportunity for profit or loss factor.
(6)(i) Example. A housekeeper works for a ski resort every winter. At the end of each winter, he stops working for the ski resort because the resort shuts down. At the beginning of each of the past several winters, the housekeeper returned to his prior position at the ski resort without formally applying or interviewing.
(ii) Application. The housekeeper has a long-term and indefinite work relationship with the ski resort under the permanence factor, which weighs in favor of classification as an employee. That his periods of working for the ski resort end at the end of each winter is a result of the seasonal nature of the ski industry and is thus not indicative of a sporadic relationship. The fact that the housekeeper returns to his prior position each new season indicates that his relationship with ski resort does not end and is indefinite as a matter of economic reality.
(Revised Relative to the 2021 Trump Regulations) (7)(i) Example. An editor works part-time for a newspaper. The editor works from home and is responsible for assigning and reviewing many articles published by the newspaper. Sometimes she also writes or revises articles. The editor is responsible for determining the layout and order in which all articles appear in the newspaper’s print and online editions. She makes assignment and layout decisions in coordination with several full-time editors who make similar decisions with respect to different articles in the same publication and who are employees of the newspaper.
(ii) Application. The editor is part of an integrated unit of production of the newspaper because she is involved in the entire production process of the newspaper, including assigning, reviewing, drafting, and laying out articles. This factor points in the direction of her being an employee of the newspaper. This conclusion is further supported by the fact that the editor performs the same work as employees of the newspaper in coordination with those employees. The fact that she does not physically work at the newspaper’s office does not outweigh these more probative considerations of the integrated unit factor.
(8)(i) Example. A journalist writes articles for a newspaper on a freelance basis. The journalist does not have an office and generally works from home. He submits an article to the newspaper once every 2 to 3 weeks, which the newspaper may accept or reject. The journalist sometimes corresponds with the newspaper’s editor regarding what to write about or regarding revisions to the articles that he submits, but he does not otherwise communicate or work with any of the newspaper’s employees. The journalist never assigns articles to others nor does he review or revise articles that others submit. He is not responsible for determining where his article or any other articles appear in the newspaper’s print and online editions.
(ii) Application. The journalist is not part of an integrated unit of production of the newspaper, indicating independent contractor status. His work is limited to the specific articles that he submits and is completely segregated from other parts of the newspaper’s processes that serve its specific, unified purpose of producing newspapers. It is not relevant in analyzing this factor that the writing of articles is an important part of producing newspapers. Likewise, the fact that he works at home does not strongly indicate either status, because the nature of the journalist’s work is such that the physical location where it is performed is largely irrelevant.
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If you have any questions or comments concerning the foregoing, please let me know, at rhollrah@hollrahllc.com or (202) 659-0878.
The foregoing is intended solely as general information and may not be considered tax or legal advice; nor can it be used or relied upon for the purpose of promoting, marketing, or recommending to another party any transaction or matter addressed herein. You should not take any action based upon any information contained herein without first consulting legal counsel familiar with your particular circumstances.
[1] The proposed test would also apply for purposes of the Family and Medical Leave Act (“FMLA”) and the Migrant and Seasonal Agricultural Worker Protection Act (“MSPA”). DOL notes that both these statutes incorporate the FLSA’s scope of employment.