The Small Business & Entrepreneurship Council is urging the U.S. Department of Labor to finalize a proposed rule that would revise how independent contractors are classified under federal labor law, arguing the change would bring greater clarity to a system that affects tens of millions of workers and businesses across the United States.
The proposal, which remains under review, has become part of a broader policy debate over how to define independent work in a modern economy where freelance, contract, and gig arrangements have expanded rapidly alongside traditional employment.
A push to clarify worker classification rules
At the center of the Department of Labor’s proposal is a simplified “economic realities” framework that would rely primarily on two key factors: the degree of control a company has over a worker’s activities and whether the worker has a meaningful opportunity to profit or risk financial loss.
Supporters of the approach say it is intended to reflect longstanding court interpretations, focusing on how work functions in practice rather than relying on more complex multi-factor tests that can vary in interpretation.
The SBE Council argues that this streamlined approach would reduce confusion created by overlapping standards in prior rules, including a 2024 regulation that critics said made it harder for businesses and workers to determine classification with certainty.
Independent work continues to grow
The council cited data suggesting that independent work now plays a significant role in the U.S. labor market. It cited a 2025 industry estimate indicating nearly 73 million Americans engaged in some form of independent work during the year, ranging from full-time contractors to part-time or occasional freelance activity.
It also referenced U.S. Census Bureau data showing continued strength in entrepreneurship, with more than five million business applications filed annually in recent years. Many new businesses, the group noted, begin as independent contracting arrangements before evolving into larger operations.
Economic flexibility vs. regulatory uncertainty
In its comments, the SBE Council emphasized that independent contractors often provide flexibility for small businesses, allowing firms to scale operations, manage costs, and access specialized skills without expanding full-time payrolls.
However, it also warned that unclear classification standards can increase compliance risks and discourage hiring, particularly for startups and early-stage companies that lack large administrative or legal resources.
The organization argues that clearer rules would help reduce those uncertainties and support continued business formation.
Support for an “economic realities” approach
Proponents of the proposed rule say returning to a more focused economic realities test would better align federal guidance with how courts have traditionally evaluated contractor status.
Under this view, routine business practices—such as requiring safety standards, insurance coverage, or contractual performance conditions—should not automatically be interpreted as evidence of employer control, since they may reflect general legal or industry requirements rather than direct supervision of work.
Broader implications for workers and businesses
The SBE Council frames the proposal as a way to provide more predictable expectations for both workers and employers navigating a changing labor market. Advocates of the rule argue that clearer standards could encourage entrepreneurship, reduce legal uncertainty, and make it easier for companies to scale without shifting interpretations of employment status.
The group has called for a timely final decision from the Department of Labor as the debate over worker classification continues to draw attention from policymakers, business groups, and labor advocates alike.