The U.S. Department of Labor’s (DOL) Wage and Hour Division has proposed scrapping its 2024 worker classification rule and returning, with some updates, to a framework it first introduced in 2021. The proposal, issued as a Notice of Proposed Rulemaking (NPRM), would affect how millions of freelancers, gig workers and contract professionals are classified under federal law.
For companies that rely on flexible talent and for the workers themselves, the stakes are significant.
At its core, the DOL’s proposal asks a straightforward question: Is a worker truly running their own business, or are they economically dependent on a single company for work in the way a typical employee would be?
How the government answers that question has real consequences for pay, benefits, tax obligations and legal protections across the American workforce.
Two Factors Now Sit at the Top of the Test
Under the proposed rule, two “core factors” would carry the most weight in determining whether someone is an employee or an independent contractor, according to the DOL’s NPRM.
The first is control. If a worker sets their own schedule, chooses which projects to take on and is free to work for competitors, that points toward independent contractor status. If the company dictates those terms, the relationship looks more like employment.
The second is opportunity for profit or loss. A worker who can earn more (or lose money) based on their own business decisions, investments or hustle is more likely an independent contractor under this framework. Someone who can only earn more by putting in more hours? That looks like an employee.
When both of these factors point in the same direction, the DOL says there is a “substantial likelihood” the classification is correct. Three other factors, including the skill required, the permanence of the relationship and whether the work is part of the company’s integrated production process, remain in the analysis but are described as “less probative.”
Why the DOL Says the 2024 Rule Wasn’t Working
In practice, the DOL argues, a company’s investment almost always dwarfs that of an individual contractor, meaning this factor could signal employee status in nearly every case. That, the agency says, risks discouraging legitimate independent contracting arrangements.
According to the NPRM, the 2024 framework relies on six broad, equally weighted factors with limited guidance on how to resolve conflicts among them, and overlapping concepts that invite duplicative analysis.
The DOL also views the 2024 rule as out of step with a knowledge-based economy where shorter, project-based engagements are increasingly common.
A Win for Companies Worried About Safety and Compliance
One of the most notable features of the proposal is its treatment of safety, legal compliance and quality standards. Under the proposed rule, a company that requires its contractors to follow health and safety regulations, carry insurance or meet typical contractual deadlines would not have those requirements counted as “control” that suggests an employment relationship.
According to the DOL, stakeholders raised concerns that the 2024 rule’s approach to these requirements was discouraging businesses from enforcing legitimate safety practices. The proposed rule attempts to draw a clear line: holding a contractor to legal and safety standards is not the same as controlling how they do their work.
What Actually Happens Matters More Than What the Contract Says
The proposal also brings back a principle that was central to the 2021 rule: what happens on the ground matters more than what a contract says on paper. A worker’s theoretical right to negotiate rates or take on other clients carries little weight if, in reality, the company prevents them from doing so.
This is particularly relevant for gig platforms and staffing companies that may include broad contractor language in their agreements while maintaining tight control over how work gets done.
Reserved contractual rights may still factor into the analysis if they are actually enforced or influence behavior, but the DOL is making clear that labels alone won’t determine the outcome.
The Complicated Middle Ground
If finalized, the rule would also unify the classification framework across the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act, simplifying compliance for businesses navigating multiple federal statutes.
Still, the legal landscape remains fragmented. The DOL’s rule applies only to federal wage and hour law; state-level tests, including California’s ABC test, operate independently. And the 2024 rule remains the governing standard for private FLSA litigation unless and until this proposal becomes final.
What This Means for the Future of Work
How the government classifies workers is one of the most consequential policy questions in labor and employment law. Reclassifying contractors as employees can trigger minimum wage and overtime obligations, benefits eligibility, tax withholding and exposure to wage-and-hour lawsuits.
For companies that have built their business models around contract talent, the proposed rule’s emphasis on control and profit-or-loss opportunity provides a clearer set of guideposts. For workers, the focus on actual practice over contract language signals the DOL intends to look past paperwork and examine whether a worker genuinely operates with the independence that contractor status implies.
The public comment period on the NPRM that closes April 28 offers an opportunity for businesses, worker advocates and industry groups to weigh in. The final rule, whenever it arrives, will help determine the legal boundaries of independent work in the United States for years to come.
