Getting worker classification wrong is costly. Misclassifying an employee as an independent contractor can expose your business to significant penalties, including unpaid wages and attorneys’ fees. It hasn’t helped that the current rules make that determination difficult to assess with any certainty.
As of February 26, 2026, the U.S. Department of Labor (DOL) has issued a proposed rule that is meant to simplify the classification process and give employers more certainty. The rule would replace the current “totality-of-the-circumstances” approach and revert to the 2021 rule that applied an “economic reality” approach. This proposed rule is generally viewed as more business-friendly than the current one.
How the “economic reality test” works
The economic reality test asks a straightforward question: is the worker “economically dependent” on an employer, or are they truly running their own independent business?
There are five factors for consideration:
- Control—how much control does the employer have over how the work gets done?
- The individual’s opportunity for profit or loss;
- The amount of skill required for the work;
- The degree of permanence of the working relationship between the individual and the potential employer; and
- Whether the work is part of an integrated unit of production. In other words, is the work being performed a core part of the employer’s operation?
The first two—the nature and degree of control and the opportunity for loss or profit—carry the most weight. If both of those factors point towards the same classification, there is a “substantial likelihood” that is the individual’s accurate classification. The rule also emphasizes that what actually happens on the ground matters more than what’s written in a contract.
A note for Maine employers
The rule would apply a uniform standard to the Fair Labor Standards Act, the Family and Medical Leave Act, and the Migrant and Seasonal Agricultural Worker Protection Act. However, in some areas of the law, including workers’ compensation, unemployment, and wage & hour issues, Maine uses a different test to determine if a worker is an employee or an independent contractor. In Maine, employers are required to prove two tiers of criteria to establish an individual as an independent contractor. Employers will need to be aware of situations in which there may be a conflict between the new rule and Maine’s rule.
The takeaway
Public comments are being accepted until April 28, and the final rule may be issued in the latter portion of this year. If you use independent contractors in your business, now is a good time to take stock of those relationships and make sure your classifications hold up under scrutiny. The proposed rule is a step toward greater clarity, but it doesn’t eliminate risk—especially in Maine, where state rules add another layer to the analysis. When in doubt, consult with your labor and employment attorney before a classification decision comes back to bite you.
Bernstein Shur’s Labor & Employment Group helps businesses of all sizes build compliant, productive workplaces through practical, real-world solutions. The group provides full-spectrum support on issues ranging from hiring and discipline to investigations, union relations, and employment litigation. Anne-Marie L. Storey is a leading Labor and Employment attorney with more than two decades of experience who advises Maine employers on all aspects of workplace law, including compliance, risk management, employee relations, investigations, and litigation. She can be reached at [email protected].