Here’s a question worth asking before someone else asks it for you:
Are the people you call contractors actually contractors?
I don’t mean legally — I mean under the rules that actually govern how they get classified. Because those rules just changed. Sort of. And the answer depends on which rules you’re using, which state you’re in, and which version of federal guidance survives long enough to matter.
Let me break it down.
A Quick History of the Hot Mess
Independent contractor classification under federal law has been a moving target.
In 2021, the DOL established a five-factor economic realities test, with two “core” factors carrying extra weight: control over the work, and the worker’s opportunity for profit or loss.
In 2024, the Biden administration replaced that with a six-factor “totality of circumstances” test — no single factor was weighted more heavily than any other. The idea was to cast a wider net and make it harder to misclassify workers as contractors.
In 2026, the current DOL proposed rescinding the 2024 rule and going back to something closer to the 2021 approach — two core factors, four supporting ones.
As of right now, the 2024 rule is still technically on the books. The 2026 proposal is pending. Which means you’re operating under a rule that the agency enforcing it has basically told you they don’t believe in anymore.
That’s about as awkward as regulatory limbo gets.
The Six Factors (2024 Rule — Still Technically in Force)
Under the 2024 rule, all six of these factors are weighted equally:
- The worker’s opportunity for profit or loss based on managerial skill
- Investments by the worker and the potential employer in the relationship
- The degree of permanence of the work relationship
- The nature and degree of the hiring entity’s control over the work
- The extent to which the work is integral to the hiring entity’s business
- The worker’s skill and initiative
No single factor decides it. You weigh them all, consider the totality, and hope you land in the right place.
Factor #5 — “integral to the business” — is the one that has caused the most problems for professional services firms. More on that in a minute.
What the 2026 Proposal Changes
The proposed rule doesn’t eliminate the other factors — it demotes them.
Control and profit/loss become the “core” factors. The other four become supporting factors that inform the primary ones, rather than standing equal to them.
That reordering matters. A lot.
Under the old rule, a firm could check every box on control and profit/loss and still have meaningful legal exposure if factor #5 cut hard against them. Under the new proposal, the same firm clears the test more easily — because “integral to the business” is no longer a co-equal factor.
Why It’s Still a Hot Mess Even Once Finalized
A cleaner test doesn’t mean a clean answer. A few reasons:
Courts don’t have to follow it. Post-Loper Bright (2024), federal courts no longer owe automatic deference to agency rules. A federal judge can look at the same facts and land somewhere different. You could satisfy DOL’s test and still lose a misclassification suit.
State law operates completely independently. California’s ABC test, for example, is far stricter than anything DOL is proposing. A worker can be a lawful contractor under federal law and still be a misclassified employee under state law. Multi-state firms get zero relief from a federal rule change.
Plaintiffs’ attorneys will keep citing the old rule. Lawyers bringing misclassification suits aren’t going to abandon the 2024 six-factor framework just because DOL rescinded it — they’ll keep citing it as persuasive authority in sympathetic circuits.
It could flip again. This is the third full reversal in five years. “Final rule” doesn’t mean “permanent.”
What This Means for Professional Services Firms
Let’s get specific. A few scenarios that come up regularly:
The coaching or training company using facilitators.
This is one of the trickier ones. If your business model is delivering coaching or training experiences, and you hire independent facilitators to deliver those experiences — factor #5 under the old rule is a serious problem. Facilitating coaching for a coaching company is about as “integral to the business” as it gets.
Under the proposed rule, that factor gets demoted. If your facilitators can work for other firms, can decline engagements, and have real opportunity to grow their own earnings through initiative — they likely land on the contractor side more cleanly.
But: if you control how they deliver the material — locked scripts, mandatory training, ongoing quality supervision, recorded sessions reviewed — that cuts back toward employee status on the control factor, which is now a core factor. So it’s not a free pass. It’s a different analysis.
The consulting firm using subcontractors for client delivery.
If you regularly bring in subcontractors to staff client engagements, you’ve probably felt some version of factor #5 anxiety. The work they’re doing is the work your firm sells.
Under the new proposal, the analysis shifts to: do they control how they do the work? Do they have real profit/loss opportunity — can they negotiate rates, take on other clients, build their own reputation? If yes, the contractor classification holds up better than it did under the old rule.
The risk area: if your subcontractors work exclusively for you, on an indefinite basis, following your processes and methods — the control and permanence factors both pull toward employee, regardless of which rule applies.
The staffing agency or fractional services firm.
This one varies most by state. Federal rule changes matter less here because the nature of the business often triggers scrutiny at the state level regardless. If you’re placing workers in client environments — even as independent contractors — check the state law in every jurisdiction where those workers operate. Don’t assume federal compliance covers you.
What to Actually Do
You don’t need to panic. Most clearly-structured contractor relationships hold up fine under either version of the test. But a few things are worth doing:
Document actual practice, not just contract language. A contract that says “independent contractor” doesn’t make someone a contractor. What matters is how the relationship actually works — who controls the work, whether they can work for others, whether they have real economic independence.
Flag arrangements where factor #5 is a concern. If contractors are delivering your core product or service, get a second opinion on the classification. This is exactly the kind of thing that looks fine until it doesn’t.
Know your state exposure. If you have contractors in California, Massachusetts, New Jersey, or other states with strict ABC tests — get state-specific advice. The federal rule change is close to irrelevant in those states.
Don’t assume the new rule is a green light. The proposal isn’t final. Courts don’t have to follow it. And state law doesn’t care. A classification that was borderline under the 2024 rule may be slightly safer under the new proposal — but “slightly safer” isn’t the same as “clearly fine.”
When in doubt, talk to someone who knows this area. The cost of a conversation is a lot lower than the cost of getting it wrong.
Chris Geno is a CPA and fractional controller at High Rock Accounting. This post is for informational purposes and doesn’t constitute legal advice — contractor classification questions with real stakes deserve a conversation with a qualified employment attorney.
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