The construction industry is navigating yet another regulatory pivot. In February 2026, the Trump administration’s Department of Labor announced a Notice of Proposed Rulemaking to rescind the 2024 Biden-era independent contractor rule and restore a framework similar to the 2021 approach. This proposed rule change, under the legal framework of the Fair Labor Standards Act (FLSA), directly affects how Carolinas commercial construction firms classify workers, vet subcontractors, and manage compliance on federal and state projects.
The Trump DOL’s 2026 proposed rule would rescind the 2024 independent contractor rule and return to a 2021-style framework that prioritizes two core factors—workers’ control and workers’ opportunity for profit or loss. This matters for every Carolinas contractor managing 1099 relationships and bidding on public work.
Regulatory whiplash is the only way to describe this timeline. The 2021 rule under the Fair Labor Standards Act, issued by the Trump administration, established a five-factor test with two core factors—control over the work and the worker’s opportunity for profit or loss—designed to make it easier to establish independent contractor status. That rule took effect on March 8, 2021, only to be withdrawn by the Biden administration.
The Biden DOL issued its 2024 final rule, effective March 11, 2024, framing it as a restoration of the “traditional” six-factor economic reality test, consistent with pre-2021 case law. Then came the June 28, 2024, Supreme Court decision in Loper Bright Enterprises v. Raimondo, ending automatic judicial deference to agency interpretations—adding further uncertainty about which DOL view courts would follow.
The 2026 proposal, published in the Federal Register on February 27, 2026, doesn’t create an entirely new test. It formally rescinds the 2024 totality-of-circumstances rule and largely re-adopts the streamlined 2021 analytical structure. The public comment period closes April 28, 2026.
Until the 2026 rescission is finalized, the 2024 rule remains the operative standard for the Department of Labor enforcement under the Fair Labor Standards Act (FLSA). Understanding what it requires is essential for Carolinas contractors managing current relationships.
The 2024 rule applies a six-factor test that examines: opportunity for profit or loss depending on managerial skill; investments by the worker and the potential employer; permanence of the working relationship; nature and degree of control over the work; the extent to which the work performed is an integrated unit of production; and skill and initiative. Under this framework, no factor carries a predetermined weight—the ultimate inquiry is whether the worker is economically dependent on the hiring entity or is in business for themselves.
Consider a framing crew leader operating through their own LLC with invested tools, trucks, and trailers, bidding on multiple projects and hiring helpers. Under the 2024 rule’s totality analysis, factors such as integral work (framing is core to a general contractor’s business) and control (jobsite scheduling, safety protocols) might tilt toward employee status even if the profit/loss opportunity suggests independence.
The 2024 rule extends to FLSA overtime pay and minimum wage coverage, and the DOL cross-references it for purposes of the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act. However, other federal laws, such as the Internal Revenue Code and the National Labor Relations Act, have their own worker classification standards and are not governed by the DOL’s final rule.
For Carolinas construction executives, the 2024 rule’s problems are practical, not theoretical. ABC and merit shop contractors have consistently described it as confusing and biased toward finding employee classification, consistent with broader national efforts to push back on anti–merit shop policies.
The totality test provides few bright lines, forcing HR and operations teams to predict how an investigator might weigh the same facts. In contrast, some states use the ABC test, which sets a more straightforward standard for worker classification by requiring all three prongs to be met for independent contractor status. The 2024 rule’s description of the control factor blurs legitimate jobsite safety requirements and quality standards with indicia of employment—creating uncertainty for general contractors coordinating multiple trades. When the law requires OSHA compliance and you enforce it, should that count against independent contractor status?
Investment is treated as a separate factor, creating tension where contractors reasonably expect independent subs to invest in trucks, trailers, and tools. The rule’s examples sometimes downplay these investments relative to the employer’s larger capital outlays.
As covered in Construction Executive, Associated Builders and Contractors has publicly criticized the 2024 rule for increasing the risk of misclassification and the compliance burden without providing workable guidance for the actual practice of construction operations.
The 2026 Notice of Proposed Rulemaking from the Trump DOL’s wage and hour division initiates a formal rescission of the 2024 DOL rule. The comment period closes April 28, 2026.
The proposed rule would adopt a simplified economic reality test centered on two core factors: the nature and degree of control over the work and the worker’s opportunity for profit or loss based on managerial skill, initiative, or investment. Additional factors—skill required, permanency, and whether work is part of the potential employer’s production process—remain relevant but explicitly secondary. They rarely outweigh the core factors that point toward one classification.
Under the 2026 framework, actual practice on the jobsite matters more than theoretical contract language. Reserved but unused control gets less weight than under the 2024 analysis. Legal and safety compliance requirements are carved out as less probative of employee status.
Compare outcomes: a drywall subcontractor under the 2024 rule might look more like a typical employee due to site integration and schedule control. Under the 2026/2021-style test, the same sub—with strong workers’ control over staffing, tool investments, and profit/loss bearing—would more likely be considered employees of their own business, not yours.
For ABC Carolinas members, classification rules affect bidding, staffing, subcontractor strategy, and risk transfer across North and South Carolina projects. Similar classification challenges have also arisen for gig workers, such as rideshare drivers and app-based transportation workers, under both state and federal laws.
General contractors and CMs at risk must analyze relationships with smaller specialty subs—punch-out crews, demo crews, clean-up labor, flaggers—often treated as 1099 but operating more like employees under the 2024 rule’s economic dependence analysis. These relationships draw scrutiny.
Misclassification audits from DOL, state labor departments, and joint task forces coordinating with IRS have intensified. DOL recovered $7.5 million in back wages from misclassification in FY2024 alone. Projects with large numbers of 1099 workers or layered subcontracting on public works face heightened exposure.
Worker classification connects directly to safety culture. When workers function like employees on your site, regulators expect your firm to own training, PPE, and supervision—feeding back into the control analysis. Investing in expert construction safety training programs can help demonstrate a proactive safety culture, while HR, legal, and project operations leaders create cross-functional teams to review labor brokers, staffing firms, and sole proprietor subs.
While the FLSA independent contractor test is formally separate from Davis-Bacon requirements, agencies increasingly examine classification holistically on federal and state-funded projects in the Carolinas.
On Davis-Bacon projects—federal building, highway, and military construction—DOL investigators may question whether “independent” workers and lower-tier subs should be treated as employees for wage determination purposes. The economic reality factors in both the 2024 and proposed 2026 tests overlap heavily with Davis-Bacon inquiries about who directs work and who pays prevailing wage rates, making robust safety and management education initiatives an important part of your overall compliance posture.
Example: A GC on a federal courthouse renovation in North Carolina uses a small labor-only carpentry outfit. DOL could argue, under federal law, that those workers are economically dependent on the GC and must receive full Davis-Bacon carpentry rates and fringe benefits.
Document subcontractor independence thoroughly on public work—separate supervision, payroll, and equipment. Ensure subcontracts require compliance with Davis-Bacon or state-law prevailing-wage obligations.
Here’s where the two frameworks diverge in practice:
Factor Structure: The 2024 rule weighs six economic reality factors equally in a totality assessment. The 2026 proposal elevates two core factors—control and profit/loss opportunity—with other factors serving as secondary guideposts.
Control Treatment: The 2026 proposal carves out compliance with legal, safety, and quality standards as less probative of employee or independent contractor status. The 2024 commentary treats such controls as potentially indicative of an employer-employee relationship.
Investment Analysis: Under the 2024 rule, investment is a separate factor that often results in subcontractor tool and equipment investments being minimized. The 2026 proposal considers investment as evidence of control and profit/loss opportunity rather than a standalone analysis.
Compliance Clarity: The 2024 totality test has been criticized for vagueness and unpredictable balancing. The 2026/2021-style test is promoted by ABC and others as more predictable and aligned with federal court precedent—even though it still requires case-by-case analysis.
Sound documentation and contract structuring reduce audit and private litigation risk regardless of which new rule controls. This is where operational discipline—and well-structured customized insurance and benefits solutions for contractors—pay dividends.
Written Agreements: Every independent contractor relationship needs a written agreement that clearly states independent business status, allocates risk and insurance, and preserves the contractor’s control over staffing, equipment, and work methods.
Evidence of Independence: Document a separate business entity and tax ID per internal revenue code requirements, multiple customers, meaningful investment in tools and equipment, ability to hire helpers, and the contractor bearing a substantial likelihood of profit or loss. For many firms, leveraging a construction healthcare captive for ABC members is another way to control labor costs while maintaining clear independent business structures.
Jobsite Records: Review supervision logs, daily reports, and project communications to ensure they reflect coordination of independent businesses—not minute-by-minute control of individual workers.
Distinct HR Tracks: Align HR systems, timekeeping, and safety programs so employees and independent contractors are treated distinctly in actual practice—separate onboarding, distinct PPE policies, no long-term 1099s in core employee roles, and a structured workforce development management system that supports consistent training and advancement.
While the 2026 proposed rule moves through the comment period, these steps position your firm for either outcome:
Action 1: Conduct a Focused Classification Audit. Start with high-risk categories—labor-only crews, flaggers, clean-up, short-term 1099 field labor. Document how each relationship fares under both the 2024 totality test and the proposed 2026 core-factor test. Correct obvious misclassifications now.
Action 2: Tighten Contracts and Onboarding. Update independent contractor agreements and subcontracts. Revise scopes to emphasize business-to-business relationships. Establish a consistent checklist that your teams use to classify workers and vet new 1099 relationships before work starts, integrating expectations around construction safety and management education.
Action 3: Strengthen Prevailing Wage Compliance. Train project managers and payroll staff on Davis-Bacon and state rules. Build periodic self-audits into federal and state-funded jobs. Coordinate classification decisions with wage determinations for accurate classification across all compliance areas, and use ABC Carolinas compliance and education events to keep your teams current.
Document these efforts as evidence of good-faith compliance—valuable in DOL investigations regardless of which final rule governs.
The year 2026 presents a pivotal moment for merit shop contractors. Independent contractor rules intersect with the expansion of Davis-Bacon enforcement, project labor agreement pressures, and aggressive joint-employer theories shaping the risk environment.
Associated Builders and Contractors, in statements quoted by Construction Executive, supports rescinding the 2024 rule, arguing it imposed unnecessary complexity on contractors and workers who prefer customarily engaged independent business relationships. The dol proposes returning to a framework ABC views as more aligned with how construction actually works.
ABC Carolinas works with ABC National to file comments on DOL rules, participate in litigation where appropriate, and educate members on practical compliance while advocating for merit shop-friendly standards through its national advocacy initiatives for merit shop contractors. Worker classification isn’t just an HR issue—it’s part of overall business risk management, competitive strategy, and advocacy where ABC Carolinas membership delivers real value.
The regulatory calendar for this new independent contractor rule is tight:
Assume plaintiffs’ attorneys will continue invoking the 2024 rule in misclassification lawsuits even after a new rule finalizes. Post–Loper Bright, courts aren’t required to follow DOL’s view—same classification disputes may yield different outcomes across jurisdictions.
ABC Carolinas serves as a strategic partner for commercial construction firms confronting classification, prevailing wage, and regulatory uncertainty across North and South Carolina, backed by member-focused advocacy, safety, and business resources.
We track DOL developments and provide member alerts on key milestones—close of the comment period, issuance of the final rule, and major court challenges—with construction-specific implications for Carolinas contractors, often delivered through targeted industry events and briefings.
ABC Carolinas connects members with vetted legal and HR professionals who understand construction and can assist with classification audits, contract updates, and Davis-Bacon compliance programs. Our construction safety training and safety culture programs and workforce development initiatives across the Carolinas help build a stable W-2 workforce in roles where independent contractor classification is difficult to defend.
Download the ABC Action App and engage in ABC Carolinas advocacy efforts. Your voice from the Carolinas helps shape federal and state law policies affecting merit shop contractors. Classification compliance and competitive advantage go hand in hand—and active ABC Carolinas membership delivers both.
These questions address common concerns from Carolinas contractors not fully covered above.
The DOL rule governs FLSA classification for federal wage-and-hour purposes. North Carolina and South Carolina apply their own standards for unemployment insurance, workers’ compensation, and state tax—these do not automatically change when federal laws change. A worker might be classified as an independent contractor under one system while considered an employee under another. Consult local counsel or ABC Carolinas contact resources to understand how the NC Division of Employment Security and the SC Department of Employment and Workforce approach classification in light of federal standards.
No. The DOL’s contractor rule does not alter IRS standards. The IRS uses its own multi-factor tests focused on behavioral control, financial control, and the nature of the relationship under the Internal Revenue Code. Seek alignment where possible between wage and hour, tax, and state law classifications, documenting your reasoning when differences are unavoidable.
The FLSA classification rules from the US Department of Labor apply to all employers regardless of union status. However, merit shop contractors—like ABC Carolinas member companies and leaders—often rely more heavily on flexible subcontracting and independent contractor models, making the practical impact more pronounced. Classification issues can also intersect with National Labor Relations Act organizing campaigns, so nonunion contractors should view this as part of a broader labor-relations risk profile.
Don’t wait and see. Review high-risk 1099 relationships now under the 2024 rule, correcting obvious misclassifications and strengthening documentation where the independent contractor relationship appears defensible. Use the proposed 2026 core-factor framework as a second lens so today’s decisions remain supportable if and when the new rule takes effect, and consider deeper engagement through ABC Carolinas committees focused on safety and advocacy, and the ABC Carolinas membership application process.
Under the Portal-to-Portal Act, good-faith reliance on DOL regulations provides some defenses against liquidated damages in FLSA cases—but doesn’t eliminate back wage liability or shield employers from all lawsuits. The best protection remains proactive compliance: careful classification decisions, strong documentation, and ongoing monitoring through resources like ABC Carolinas and ABC National, supported by apprenticeship and craft education programs and career and credentialing pathways into construction.
