Many businesses rely on independent contractors for flexibility, specialized skills, and project-based work. However, properly classifying workers as employees or independent contractors remains one of the most common compliance challenges for employers.
Over the past several years, the U.S. Department of Labor (DOL) has changed the standards used to determine independent contractor status under the Fair Labor Standards Act (FLSA). Understanding the current landscape can help businesses reduce the risk of worker misclassification.
The 2024 Rule and the Six-Factor Test
In March 2024, the DOL issued a rule that replaced an earlier 2021 standard and returned to a broader analysis for determining worker classification.
The rule uses a six-factor “economic reality” test that looks at the full working relationship between the worker and the business. No single factor determines the outcome. Instead, regulators evaluate the totality of the circumstances.
The factors include:
• the worker’s opportunity for profit or loss based on managerial skill
• investments made by the worker and the business
• the permanence of the working relationship
• the degree of control the company has over the work
• whether the work is integral to the company’s business
• the level of skill and initiative required
This approach generally makes it more difficult to classify workers as independent contractors because it focuses on whether the worker is economically dependent on the company (Federal Register).
Current Enforcement in 2026
Although the 2024 rule remains the official regulation, enforcement has shifted.
Beginning May 1, 2025, the Department of Labor announced it would pause enforcement of the 2024 rule during wage and hour investigations. Instead, investigators have been directed to rely on longstanding economic reality guidance used prior to the 2024 rule.
At the same time, the Department of Labor recently proposed a new rule that could rescind the 2024 regulation and move back toward a framework similar to the 2021 rule (DOL).
Public Comment Period Now Open
The proposed rule is currently open for public comment. Employers, industry groups and workers can submit feedback before the rule is finalized.
You can review the proposal or submit comments directly through the federal rulemaking portal: Submit or Review Comments on the Proposed Rule.
The comment period is open through April 28, 2026, after which the Department of Labor will review submissions before issuing a final rule.
What This Means for Employers
Because worker classification standards continue to evolve, businesses should periodically review how they work with contractors and ensure their classifications are well supported.
Companies should pay close attention to the level of control they exercise over contractors, whether the contractor operates an independent business and how integral the work is to their operations.
Misclassifying workers can lead to significant financial exposure, including back wages, overtime liability, tax issues and penalties.
How FocusPay Can Help
Worker classification affects payroll reporting, tax compliance and workforce management. The FocusPay team helps businesses navigate these complexities and stay compliant as regulations continue to change. If you have questions about contractor payments or worker classification from a payroll perspective, we are here to help.
For more information on the above article or any human resource management services, contact Katelyn Parks at (334) 321-4729 or by leaving us a message below.
