The DOL Updated Independent Contractor (1099) Tests and How to Keep Your Business Compliant

The U.S. Department of Labor’s proposed rule, announced in early 2026, aims to simplify how businesses determine if a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA). For leadership, the most critical takeaway is the return to a "total of the circumstances" economic reality test, which moves away from the more rigid 2024 standards. This test focuses on whether a worker is truly in business for themselves or is economically dependent on your organization for work.

The analysis hinges on two core factors: the nature and degree of your control over the work and the worker’s opportunity for profit or loss based on their own managerial skill and investment. Additional considerations include the degree of permanence in the relationship, the amount of specialized skill required, and how integral the work is to your business operations. Leaders must understand that the DOL will prioritize the "actual practice" of the working relationship over what is written in a legal contract; if you treat a contractor like an employee in daily operations, the government will likely classify them as such.

Misclassification carries heavy risks, including back pay, unpaid overtime, and significant legal penalties, as contractors are not entitled to FLSA protections. With the public comment period ending soon on April 28, 2026, now is the time to review your current agreements and operational practices to ensure your contractors are classified correctly.

Rising Tide HR provides the expert policy audits and documentation services needed to ensure your classifications hold up under this new scrutiny. We perform detailed reviews of your workforce set up, agreements, and ensure you are fully compliant. Contact us to ensure your workforce strategy is compliant before these federal changes take full effect.