DOL Proposes Return to Two Core Factors for Independent Contractor Classification
In This Article
Why this proposed rule matters before your next contractor payment is approved
Paying someone like a contractor does not help if your managers treat them like staff. On February 27, 2026, the U.S. Department of Labor published a proposed rule that would give added weight to two “core factors” when deciding whether a worker is an independent contractor or an employee under the FLSA. The 60-day comment period ran through April 28, 2026, per the Federal Register.
If your contractor onboarding is mostly a W-9 and a generic agreement, this is a signal to tighten the contractor packet before the next invoice is approved. The cleanest outcomes happen when the contractor packet, the manager’s behavior, and the pay path all tell the same story.
Independent Contractor Rule Snapshot
Federal FLSA proposal status, the two core factors, and what employers should audit now
Federal FLSA framework only. State and other tests may be stricter.
We’ll review classification workflow, pay path, and HRIS gates.
Featured Takeaway
The proposal would give added weight to two core factors: control over the work and opportunity for profit or loss. When both point the same direction, DOL says they will rarely be outweighed by the remaining factors.
Contractor intake control pack
Independent Contractor or Employee Checklist
What this means in practice
What DOL is signaling
- Actual practice matters more than labels
- Control and profit or loss will carry more weight
- Safety, legal, insurance, and quality requirements do not automatically equal employee-style control
What employers should tighten now
- Contractor packet completeness
- Payment path and earning-code separation
- HRIS worker-type gating
- Manager supervision guardrails
Misclassification usually surfaces as a workflow mismatch before it becomes a legal argument.
What “control” and “profit or loss” actually mean in this proposal
The proposed rule uses an economic-reality test: whether the worker is running their own business or is economically dependent on you. It elevates two core factors while still considering skill, permanence, and whether the work is part of an integrated production unit, per the Federal Register.
Control
Who directs schedule, location, method, and day-to-day work in real life, not just what the contract says.
Profit or loss
Whether the worker can affect earnings through initiative, pricing, investment, or business decisions.
One nuance worth training managers on: the proposal says requiring compliance with legal obligations, safety standards, insurance, deadlines, or quality control does not automatically equal “control” that makes someone an employee. That gives you room to enforce safety and quality without turning the relationship into employee-style supervision.
Independent contractors are not covered by the Fair Labor Standards Act (FLSA), so classifying a worker as an independent contractor removes FLSA minimum wage and overtime requirements. The DOL’s Wage and Hour Division explains the FLSA framework on its overview page.
Why this matters operationally
If a worker is treated like an employee in scheduling, supervision, and pay workflow, the contract label will not carry the file by itself.
Classification • Payroll Controls • HRIS Workflows
How VertiSource HR helps employers align classification, pay, and manager behavior
Misclassification problems usually surface as a workflow gap before they become a legal dispute. When we onboard a payroll or HR support client, one of the first things we check is whether contractor payments, HRIS settings, and manager expectations all point the same direction.
Contractor packet design
Standardize the SOW template, required attachments, and where they live in the worker record.
Payment-path controls
Review earning codes and payment paths so contractors are never paid through employee wage codes.
HRIS workflow gates
Set required fields and document uploads so the packet is complete before payment approval.
Manager guardrails
Provide a one-page reference for supervising contractors, aligned to the control and profit-or-loss factors.
Request a contractor classification workflow review
We review the contractor packet, worker-type settings, payment path, and manager expectations together so the file, the workflow, and the day-to-day reality all line up.
Explore HR servicesFrequently Asked Questions
Contractor classification gets weaker when workflow and supervision drift apart
If your contractor onboarding still depends on a W-9, a generic agreement, and informal manager habits, this is the right time to tighten the file before the next invoice is approved. VertiSource HR helps employers connect classification review, payment workflow, and HRIS controls so the same story shows up in the agreement, the system, and the day-to-day work.
VertiSource HR Team
We share practical guidance on payroll, benefits, compliance, and HR operations for employers with 15 to 500 employees, based on what we see, solve, and support every day.
Disclaimer: This content is for general informational purposes only and does not constitute legal, tax, or accounting advice. Consult a qualified attorney or licensed advisor before making employment, payroll, or compliance decisions. VertiSource HR disclaims liability for actions taken based on this material.
