On February 26, 2026, the U.S. Department of Labor’s (“DOL”) Wage and Hour Division announced a new proposed rule that’s designed to provide guidance on when to classify a worker as an employee or an independent contractor. If implemented, the proposed rule would rescind the DOL’s 2024 final rule and replace it with a more employer-friendly analysis for employee classification. In a post from last year, we forecasted this possibility when the DOL cancelled enforcement of the 2024 rule.
Regardless of shifts at the federal level, New York continues to apply a more pro-worker approach for determining employment classification. Although the federal government’s proposed rule shares some similarities with the New York State Department of Labor’s (“NYSDOL”) regulations, understanding the distinctions between the two are vital for employers to ensure they’re in compliance.
The DOL’s Shift Back to Employer-Friendly Employment Classification
The DOL’s stated goal with the proposed rule change is to make it easier to properly differentiate between employees with protections under the Fair Labor Standards Act (“FLSA”) and those workers who work as independent contractors. The DOL’s so-called streamlined analysis would also apply to other related federal laws which use the FLSA’s statutory definition of employ like the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act.
The DOL’s proposed rule would:
- Apply an economic reality test that determines whether a worker is in business for themselves as an independent contractor or is a W-2 employee economically dependent on an employer for work;
- Identify and explain two core factors to help determine if a worker is in business for themselves or is economically dependent:
- The nature and degree of control over the work and
- The worker’s opportunity for profit or loss based on initiative and/or investment;
- Identify other factors that help determine a worker’s status as a W-2 employee or independent contractor, including:
- Amount of skill required for the work,
- Degree of permanence of the working relationship, and
- Whether the work is part of an integrated unit of production;
- Advise that the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible; and
- Provide fact-specific examples applying the factors to real-life circumstances
At this stage, it’s important to note that this is only a proposed rule change, and so the rule is not officially implemented. Nonetheless, following the 60-day comment period which closes April 28, we can expect this rule to take effect.
Beware: No Changes to New York’s Standard
Despite the changes at the federal level, New York State continues to enforce a more rigid standard for determining whether a worker is classified as a W-2 employee or an independent contractor. And this continues to be the law for New York companies.
Ultimately, the NYSDOL looks at several factors to determine the degree of supervision, direction, and control an employer has over the services the worker provides.
Indicators of employer-employee relationship include:
- Choosing when, where, and how services are performed;
- Providing facilities, equipment, tools, and supplies;
- Setting working hours;
- Restricting outside work;
- Requiring prior permission for absences; and
- Evaluating job performance.
On the other hand, indicators of a worker being an independent contractor include:
- Having an established business;
- Advertisements in media;
- Carrying insurance;
- Pays for their own expenses;
- Sets or negotiates their own pay rate;
- Option to hire outside help; and
- Sets their work schedule.
Similar to the proposed federal rule, New York also looks more to the actual relationship of the worker and employer and the nature of the work being done. This is important because an employer-employee relationship may exist (which trigger the employer’s additional obligations) regardless of how the hiring party describes it.
For example, even if a company gives its worker a Form 1099 rather than a W-2, the government still may classify the worker as an employee if the relevant factors are present.
Bottom Line for Employers – Dual Compliance
As you may have noticed, there’s some shared language between the federal test for employee or independent contractor compared to the NYSDOL’s test. The key distinction, however, lies in the core facts each government actor emphasizes. Under federal law, if this rule is formalized, the key standard is whether the worker is in business for themselves or is economically dependent on the employer.
Conversely, under New York law, the key standard is whether the purported employer controls or directs the work being performed.
Even though there are shifts in federal enforcement, New York employers still must comply with the State’s stricter requirements. Misclassifying workers can lead to consequences like:
- Wage and hour penalties;
- Unemployment and workers’ compensation contributions;
- Tax audits; and
- Civil litigation
Going forward, businesses operating in New York should be sure to regularly review their worker classifications and maintain strong documentation. When in doubt, employers should seek legal guidance before engaging with independent contractors.
Keeping up with changes in employment law at the federal and State levels is no small task. That’s why The Coppola Firm is here to help.
If you have any questions, feel free to contact us at 716.839.9700 or info@coppolalegal.com.
