Good morning. If you have been told the federal government loosened the rules on paying subcontractors, you have been told half a story. The half that got left out is the half that can cost you.
Top story — Proposed is not passed
On February 26 the Labor Department's Wage and Hour Division proposed a new test for deciding when a worker is an employee and when they are an independent contractor. It would rescind the 2024 rule and replace it with an analysis close to the one the department used in 2021 (U.S. Department of Labor, news release 26-123-NAT, 26 February 2026; 91 FR 9932).
That is genuinely friendlier to anyone who uses subs. The proposal names two "core factors" — the nature and degree of control over the work, and the worker's opportunity for profit or loss based on their own initiative or investment — with three more behind them: skill, permanence, and whether the work is part of an integrated unit of production (Department of Labor, proposed rule).
Here is the part the trade press keeps dropping. It is a proposal. The comment period closed on April 28 and, as of this morning, the department's own rulemaking page still describes it as a notice of proposed rulemaking, not a final rule (Department of Labor, 2026 rulemaking page). Nothing about how you pay your subs became legal that was not legal in April.
Quick hits
The department stopped enforcing the 2024 rule sixteen months ago — and said so in writing. Field Assistance Bulletin 2025-1, dated 1 May 2025, tells investigators the division "will no longer apply the 2024 Rule's analysis" in FLSA investigations, and to work instead from Fact Sheet #13 (July 2008) (Department of Labor, FAB 2025-1).
That is not the same as the rule being gone. The same bulletin, in its own words: "Until further action is taken, the 2024 Rule remains in effect for purposes of private litigation and nothing in this FAB changes the rights of employees or responsibilities of employers under the FLSA" (FAB 2025-1). An investigator will not use it against you. A former sub's attorney still can.
This is federal wage law only. The proposal covers the Fair Labor Standards Act, the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act — that is the whole list, and it is in the title (Department of Labor, proposed rule). Your state's classification test and the tax classification the IRS applies are separate questions, and none of this touches either one.
The Tip — Audit the practice, not the paperwork
The department's own guidance says actual practice matters more than what the contract theoretically allows (Department of Labor, proposed rule). So the sub agreement in your filing cabinet is not the defense you think it is.
Two things to check this week, on your three highest-paid 1099s.
One: is he licensed, and are you leaning on that? Fact Sheet #13 — the standard a Wage and Hour investigator is applying to you right now — states that whether an alleged independent contractor is licensed by state or local government is "not considered to have a bearing" on whether an employment relationship exists (Department of Labor, Fact Sheet #13). A trade license does not make someone a contractor. Plenty of owners think it does.
Two: could he lose money on the job? That is one of the two core factors in the proposed test, and it is the one that fails most often in the trades. If he shows up to work you assign, at your rate, in your shirt, in a truck you fuel, with materials you bought, he has no opportunity for profit or loss. He has a wage with the tax handling moved onto him.
Fixing one relationship is cheaper than losing one. And note where the department itself expects to find the problem: Fact Sheet #13's list of typical problems opens with the construction industry, where contractors hire so-called independent contractors who do not meet the tests for independence (Department of Labor, Fact Sheet #13).
Tool watch — [Not sponsored]
Fact Sheet #13 is three pages, free on dol.gov, and written in 2008. It is also, thanks to that May 2025 bulletin, the actual standard a federal investigator applies to your books today. Read it before your accountant tells you what is in it.
That's the callout. See you next time.
The Callout — the business brief for the trades. We label every commercial placement: [Sponsor], [Affiliate], or [Not sponsored]. Today's Tool watch is our own honest read — no one paid for it. 231J Ramparts Road, Te Anau 9600, New Zealand · Unsubscribe anytime.
Sources
U.S. Department of Labor, Wage and Hour Division — "US Department of Labor proposes rule clarifying employee, independent contractor status under federal wage and hour laws," news release 26-123-NAT, 26 February 2026. https://www.dol.gov/newsroom/releases/whd/whd20260226
U.S. Department of Labor — "Notice of Proposed Rule: Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act," RIN 1235-AA46; 91 FR 9932 (27 February 2026); docket WHD-2026-0001, comment period closed 28 April 2026. https://www.dol.gov/agencies/whd/flsa/misclassification/2026rulemaking
U.S. Department of Labor, Wage and Hour Division — Field Assistance Bulletin No. 2025-1, "FLSA Independent Contractor Misclassification Enforcement Guidance," 1 May 2025. https://www.dol.gov/sites/dolgov/files/WHD/fab/fab2025-1.pdf
U.S. Department of Labor, Wage and Hour Division — Fact Sheet #13, "Employment Relationship Under the Fair Labor Standards Act (FLSA)," July 2008 (reproduced in full as an appendix to FAB 2025-1).
All four read live on 11 September 2026.