The U.S. Department of Labor on February 27, 2026 published a proposed rule that would replace the Biden-era test for deciding whether a worker is an employee or an independent contractor. If finalized, the change could make it significantly easier for businesses to hire freelancers, consultants, and gig workers without running into legal trouble.
The proposed rule scraps the 2024 “totality-of-the-circumstances” framework, which weighed six factors equally and drew criticism from business groups for being vague and discouraging the use of independent contractors. In its place, the DOL is bringing back a streamlined “economic reality” test that gives the most weight to just two factors.
Those two factors are control over the work (does the worker set their own schedule, choose assignments, and work for other clients?) and opportunity for profit or loss (can the worker earn more through their own initiative or investment, and do they bear real financial risk?). If both factors point toward independent contractor status, the DOL says that classification will most likely hold up.
Secondary considerations like the worker’s skill level, the permanence of the relationship, and whether the work is part of the business’s core operations still matter, but they carry less weight.
According to the SBA Office of Advocacy, the proposed rule could save small businesses an estimated $2.31 billion over 10 years, or roughly $329 million per year. The SBA called it one of its “Most Wanted” regulatory reforms after hearing from thousands of small businesses about the burden of the 2024 rule.
There are important limits to keep in mind. The 2024 rule technically remains on the books for private lawsuits until the new rule is finalized, though the DOL has said it will not enforce it in its own investigations. State laws also remain in play. States like California, Massachusetts, and New Jersey use stricter “ABC” tests for worker classification that the federal rule does not override.
Courts are not required to follow DOL rules either, so businesses should not assume a favorable classification is bulletproof in litigation.
The public comment period is open now and closes on April 28, 2026. Business owners who have been affected by the 2024 rule, or who want to weigh in on the proposed change, can submit comments through federalregister.gov. The SBA Office of Advocacy is also collecting input directly from small businesses through Assistant Chief Counsel Janis Reyes.
A final rule is expected later this year. Until then, businesses that rely on independent contractors should review their current worker arrangements with the two core factors in mind and consult legal counsel, especially in states with stricter classification standards.
