The construction industry is no stranger to independent contractors. One advantage to using contract workers is that they’re generally not subject to the federal wage and hour requirements largely enforced by the U.S. Department of Labor (DOL).
However, the DOL also regulates whether a worker should be classified as an employee rather than an independent contractor. The agency’s test for making this determination has changed repeatedly in recent years, causing understandable concern and confusion for many construction business owners. Let’s catch up on where things stand.
State of play
In 2024, the DOL under the Biden administration generally took a “totality of the circumstances” approach to the “employee or independent contractor” question. It looked at six factors to determine a worker’s status, with no single factor weighing more heavily than another. Like previous DOL rules in this area, the 2024 rule applied only to the Fair Labor Standards Act (FLSA).
In May 2025, the DOL under the Trump administration directed its investigators to stop applying the 2024 rule in enforcement investigations. But this action didn’t rescind the rule, nor did it prevent courts or workers suing employers from applying it.
In February 2026, the DOL issued a proposed rule that would rescind and replace the 2024 guidance. And the proposal would apply its worker classification test not only to the FLSA but also to the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act.
On October 28, 2026, the U.S. Office of Information and Regulatory Affairs completed its final review of the proposed rule, which is generally considered more business friendly. As of this writing, however, the DOL hadn’t yet published it.
Details, details
The proposed rule considers the “economic reality” of the relationship — specifically, whether the worker is economically dependent on the business for work or is in business for themselves. The analysis would focus on two core factors: 1) the nature and degree of the worker’s control over the work, and 2) the individual’s opportunity for profit or loss based on initiative or investment.
Notably, requiring workers to meet legal, health and safety, or typical business-to-business contractual standards wouldn’t indicate the type of control that suggests employee status. Nor would requiring a worker to carry insurance.
The proposed rule identifies three additional factors relevant to the analysis — particularly when the core factors don’t point to the same conclusion:
- The amount of skill required for the work,
- The permanence of the working relationship between the worker and the business, and
- Whether the work is part of an integrated unit of production.
Other factors could be considered if they’re relevant to determining the worker’s economic independence.
The preamble to the proposed rule makes clear that, when both core factors point to the same worker classification, the other factors will rarely outweigh them. The current DOL has also indicated that “actual practice” is more relevant to its analysis than what may be contractually or theoretically possible.
For example, a contract worker might theoretically be free to set prices or take jobs from other businesses. But if the business engaging that independent contractor somehow restricts the individual from doing those things, that freedom is less meaningful. By the same token, a contract might allow the business to supervise or discipline the worker. However, that provision matters less if the business never uses that authority.
Important caveats
If your construction business engages independent contractors, an impending less-restrictive DOL rule might tempt you to relax your compliance efforts. But that’s not a good idea for several reasons. For starters, the IRS and the National Labor Relations Board may apply different standards to the employee vs. independent contractor issue.
And some states have their own tests, which can be stricter than the DOL’s rule. For example, California, New Jersey and several others apply a three-prong test for wage and hour laws. States might have different tests for the purposes of workers’ compensation and unemployment insurance, as well as payroll taxes.
Moreover, courts aren’t necessarily bound by the DOL’s interpretation of federal law. Many jurisdictions have developed their own multifactor tests for worker classification. Bottom line: Complying only with the DOL rule won’t necessarily ensure compliance with your other obligations.
A friendly reminder
Think of the DOL’s proposed rule on employees vs. independent contractors as a friendly reminder. It’s a good idea to regularly re-evaluate your construction business’s approach to worker classification to stay compliant with all applicable standards. Your attorney can help you iron out the legal details. Meanwhile, contact us to assess the payroll tax implications and potential financial risks associated with this important issue.
