The U.S. Department of Labor recently proposed a new rule that could affect how businesses classify workers as independent contractors or employees under the Fair Labor Standards Act (FLSA). While the rule has not yet been finalized, it signals another shift in the ongoing debate around worker classification and could have practical implications for businesses that regularly work with subcontractors, consultants, or project-based workers.

At the center of the proposal is a return to an “economic reality” analysis. This approach focuses on whether a worker is truly operating their own independent business or is economically dependent on the company hiring them.

The proposal highlights two primary considerations when determining worker classification:

  1. Control over the work – Who determines how and when the work is performed? Greater control by the hiring company may          suggest an employment relationship.
  2. Opportunity for profit or loss – If a worker can increase earnings through business initiative, investment, or decision-making, that may indicate independent contractor status.

In addition to these core factors, other considerations may still play a role in the analysis, including:

  • The level of skill required for the work
  • The permanence of the relationship between the parties
  • Whether the work performed is closely tied to the company’s core operations

Another important point in the proposal is that actual working relationships may carry more weight than contractual labels. In other words, simply calling someone an independent contractor in an agreement may not be enough if the day-to-day reality looks more like employment.

Why This Matters for Business Owners

Worker classification has been an area of ongoing regulatory change, and mistakes can carry significant consequences. Misclassification can lead to wage claims, tax complications, and potential disputes.

For companies that rely on subcontractors or independent professionals, this proposal serves as a good reminder to review how those relationships are structured. Clear agreements, properly documented business relationships, and consistent working practices can help reduce risk.

Looking Ahead

The Department of Labor is currently accepting public comments on the proposed rule through April 28, 2026. While the final outcome remains uncertain, businesses should stay aware of developments in this area and consider whether their contractor relationships are structured appropriately.

At Burkhalter Law, we work with business owners to review contractor agreements, evaluate worker classification questions, and address potential issues before they turn into larger disputes.

📞If you have questions about contractor agreements or worker classification, our team is here to help. Contact us.