Washington May Loosen Contractor Rules. That Doesn't Fix the 1099s You're Already Worried About.

If you’ve seen headlines about the federal government making it easier to classify workers as independent contractors, I need to stop you before you relax about the 1099s sitting in your files. That proposal, even if it becomes final, only settles one of the three questions that actually put your business at risk.

What’s actually changing in Washington

Earlier this year, the U.S. Department of Labor proposed rescinding the current federal test for who counts as an employee versus a contractor under wage-and-hour law, and replacing it with a version closer to a business-friendlier standard used briefly a few years ago. The proposal weighs two factors most heavily — how much control you exercise over the work, and how much opportunity the worker has for profit or loss based on their own initiative and investment — alongside three supporting factors. Public comments closed at the end of April, and as of this writing the rule hasn’t been finalized.

If it goes through as proposed, it will genuinely make it easier to justify a contractor relationship — but only for the purposes of overtime and minimum wage law. That’s the Department of Labor’s lane. It isn’t the IRS’s, and it isn’t New York’s.

Three tests, three agencies, three separate risks

Here’s the confusion I hear most from clients: a worker classification “win” in one place doesn’t travel to the others.

The Department of Labor’s test decides whether a worker is entitled to overtime and minimum wage. The IRS uses its own common-law test — built around behavioral control, financial control, and the relationship between you and the worker — to decide whether you should have been withholding payroll taxes and filing a W-2 instead of a 1099. That’s the test that actually generates the notice when the IRS or a state agency comes looking. And New York runs its own standard for unemployment insurance and workers’ compensation purposes — one that has historically leaned more employee-protective than the federal test, DOL proposal or not.

A friendlier federal wage-and-hour rule doesn’t rewrite the IRS’s 20-factor-style analysis, and it definitely doesn’t rewrite New York’s. If a worker looks like an employee under the IRS or New York tests today, they’ll still look like one after Washington finishes whatever it finishes.

The move that actually protects you

I understand the instinct — a headline says the rules are loosening, so the pressure to double-check a shaky 1099 relationship goes away. Do the opposite. If you’ve got a worker you’re genuinely unsure about — someone who works close to full-time, only for you, using your equipment, on your schedule — that uncertainty doesn’t resolve itself by waiting on a proposed rule that covers a different question than the one that actually gets you audited.

Review the relationships you’re uneasy about against the tests that actually apply to your tax and payroll exposure. If they hold up, you’ve lost nothing by checking. If they don’t, you’ve found out on your terms instead of the IRS’s.

This article is general information, not tax or legal advice. Worker classification depends on the specific facts of each relationship and can differ between federal, IRS, and state standards — confirm your situation before relying on any proposed federal rule.