--- title: "Employee or Independent Contractor? An Update for Construction Businesses" date: 2026-11-13 author: "Lauren M. Pierson" featured_image: "https://beachfleischman.com/wp-content/uploads/2026/11/2026-1113-Employee-or-independent-contractor_An-update-for-construction-businesses_blog.avif" categories: - name: "Construction" url: "/category/construction.md" tags: - name: "construction" url: "/tag/construction.md" - name: "DOL" url: "/tag/dol.md" - name: "employee classification" url: "/tag/employee-classification.md" --- # Employee or Independent Contractor? An Update for Construction Businesses [Construction companies](https://beachfleischman.com/industries/construction-phoenix-tucson-arizona-accountants-cpas/) often rely on independent contractors, both in the office and on jobsites. But deciding whether a worker is truly an independent contractor or should be treated as an employee can be complicated. The U.S. Department of Labor (DOL) has changed its approach to worker classification several times in recent years. Another change may be ahead. Construction business owners should understand the proposed federal approach while keeping in mind that other agencies, states, and courts may use different standards. ## Where the federal rules stand In 2024, the DOL adopted a rule that generally used a “totality of the circumstances” approach under the Fair Labor Standards Act (FLSA). The rule considered six factors when determining whether a worker was an employee or an independent contractor, with no single factor carrying more weight than the others. In May 2025, the DOL directed its investigators not to apply the 2024 rule in enforcement investigations. However, that action did not rescind the rule or prevent courts or workers who sue employers from relying on it. In February 2026, the DOL proposed replacing the 2024 guidance. 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. As of the source article’s November 10, 2026 publication date, the DOL had not yet published a final rule. ## Two factors would take center stage The proposed rule focuses on the “economic reality” of the working relationship. In practical terms, the question is whether a worker is economically dependent on a business for work or is operating a business of their own. The analysis would emphasize two **core factors**: 1. The nature and degree of the worker’s control over the work. 2. The worker’s opportunity for profit or loss based on initiative or investment. Under the proposal, requiring a contractor to meet legal, health and safety, or typical business-to-business contractual standards would not, by itself, indicate the type of control associated with employee status. Requiring a worker to carry insurance also would not indicate employee status on its own. Three **additional factors** may become important, especially when the two core factors point in different directions: - The skill required to perform the work. - The permanence of the relationship between the worker and the business. - Whether the work is part of an integrated unit of production. Other factors could also be considered if they help determine whether the worker is economically independent. ## Actual working practices matter The proposed approach also emphasizes what happens in practice, not merely what a contract says is possible. For example, a contractor’s agreement might say that the worker can set prices or accept jobs from other companies. If the company hiring the contractor actually limits those choices, the stated freedom may carry less weight. The reverse can also be true. A contract may give a company the right to supervise or discipline a worker, but that provision may matter less if the company never exercises that authority. This makes it important for construction businesses to review both their written agreements and their day-to-day working relationships with independent contractors. ## DOL compliance is only part of the picture Even if the final DOL rule is less restrictive, construction companies should not assume that meeting the federal labor standard resolves every worker-classification issue. The IRS and National Labor Relations Board may apply different standards. States can also impose their own tests. California, New Jersey, and several other states, for example, use a three-part test for certain wage-and-hour purposes. Different rules may also apply to workers’ compensation, unemployment insurance, and payroll taxes. Courts are another consideration. They are not necessarily bound by the DOL’s interpretation of federal law, and many jurisdictions have developed their own multifactor classification tests. Compliance reminder Meeting a DOL standard does not necessarily ensure compliance with every worker-classification requirement that may apply to the business. ## Review worker classifications regularly For construction companies that use independent contractors, the proposed DOL rule is a useful reminder to review worker classifications on a regular basis. Consider the written contract, how the relationship works in practice, and the federal and state standards that may apply. Legal counsel can help determine the appropriate classification under applicable law. **[BeachFleischman can work alongside your advisors](#contact)** to help assess payroll tax implications and potential financial risks related to worker classification, so you can make informed decisions and plan ahead. ## Frequently Asked Questions ### What are the two main factors in the DOL’s proposed worker-classification test? The proposal emphasizes the nature and degree of a worker’s control over the work and the worker’s opportunity for profit or loss based on initiative or investment. ### Does following the DOL rule ensure that a construction business has classified workers correctly for every purpose? No. The IRS, National Labor Relations Board, state agencies, and courts may use different worker-classification standards. Different tests may also apply to wage and hour laws, workers’ compensation, unemployment insurance, and payroll taxes. ### Why should construction businesses review how contractor relationships work in practice? The proposed DOL approach gives weight to actual working practices. A contract may describe certain rights or freedoms, but the way the business and contractor actually work together can affect the classification analysis. ### Should construction companies wait for a final DOL rule before reviewing independent contractors? No. The source recommends regularly reviewing worker classifications because multiple federal, state, and judicial standards may apply, regardless of what happens with the proposed DOL rule. ©2026