DOL Proposes Return to ‘Core Factor’ Test for Independent Contractor Rule
The U.S. Department of Labor has issued a notice of proposed rulemaking that would fundamentally shift how workers are classified as either employees or independent contractors under federal law. Scheduled for official publication in the Federal Register on Feb. 27, the new independent contractor rule proposal seeks to rescind the current “totality-of-the-circumstances” framework adopted in 2024 and replace it with a modified version of the 2021 “core factor” analysis.
The 2024 DOL Independent Contractor Rule established stricter criteria for businesses classifying workers as independent contractors rather than employees and drew criticism from a financial services trade groups – where advisers commonly work as independent contractors – as well as retailers, chambers of commerce and other interested parties.
The new proposed rule would apply a uniform standard across three major federal statutes: the Fair Labor Standards Act, or FLSA, the Family and Medical Leave Act, or FMLA, and the Migrant and Seasonal Agricultural Worker Protection Act, or MSPA.
At the heart of the DOL’s proposal is a return to an analysis that prioritizes two core factors as the most probative indicators of a worker’s status. Under this model, if both core factors point toward the same classification, there is a “substantial likelihood” that it is the correct one.
- The Nature and Degree of Control: This factor weighs in favor of independent contractor status if the worker, rather than the employer, exercises substantial control over key aspects of the work, such as scheduling, project selection, and the ability to work for competitors. Notably, the DOL proposes that requiring compliance with specific legal obligations or safety standards does not constitute evidence of employer control.
- Opportunity for Profit or Loss: This factor focuses on whether a worker can affect their earnings through initiative (managerial skill and business acumen) or by managing investments in equipment and helpers. If a worker can only increase their income by working faster or longer hours at a fixed rate, this factor indicates employee status.
While the core factors carry the most weight, the DOL identifies three additional factors to serve as guideposts in the analysis:
- Amount of skill required: Focuses on whether the work requires specialized training that the employer does not provide;
- Degree of permanence: Weighs in favor of independent contractor status if the relationship is sporadic or project-based by design, rather than indefinite or continuous; and
- Integrated unit of production: Considers whether the work is a component of the employer’s integrated production process (indicating employee status) or is segregable from it.
“While we are still carefully reviewing the rule, we are hopeful the department has meaningfully addressed the serious concerns raised about the prior rule,” said Dale Brown, president and chief executive officer of Financial Services Institute, an advocacy group representing independent advisers and broker-dealers. “Our members have chosen the independent contractor model – many making the switch from an employee model – so that they can build their own businesses and better serve their clients. It is crucial that advisers’ ability to choose the business model that best meets their professional goals and their clients’ needs is preserved.”
In proposing the change, the DOL expressed significant concerns that the 2024 rule is overly vague and complicates the classification process for businesses and workers alike. The department noted that an open-ended balancing test with six ambiguous elements can have a “chilling effect,” deterring firms from engaging with legitimate independent contractors or pressuring them to unnecessarily classify contractors as employees.
The six factors that guided the analysis of a worker’s relationship with an employer included: any opportunity for profit or loss a worker might have; the financial stake and nature of any resources a worker has invested in the work; the degree of permanence of the work relationship; the degree of control an employer has over the person’s work; whether the work the person does is essential to the employer’s business; and a factor regarding the worker’s skill and initiative.
By elevating control and opportunity as core factors, the DOL said it believes the new rule better aligns with Supreme Court precedent and the “ordinary understanding of being in business for oneself.”
Economic Impact and Public Comment Period
The DOL estimates that the proposed rule would yield $682.7 million in cost savings per year due to increased legal clarity and reduced litigation. While the department expects one-time regulatory familiarization costs of approximately $488.2 million, it anticipates the rule will encourage labor force entry.
Further, the department projects that the number of independent contractors could increase by 1% to 3%, representing an estimated 500,000 new independent contracting relationships.
The DOL is inviting public feedback on the proposal, specifically seeking comments on the potential labor force impact and whether any aspects of the 2024 rule should be retained. Comments must be received within 60 days of the rule’s publication in the Federal Register.
In July 2025, three Republican senators introduced a package of four bills aimed at modifying the federal labor law and creating a national standard for independent contractor classification.
Earlier, in March 2024, members of the House Education and the Workforce Committee advanced their version of a bill that sought to invalidate the independent contractor classification and 2024 rule.
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