The U.S. Department of Labor published a proposed rule on February 27, 2026, that could fundamentally reshape how Rocky Mountain contractors classify workers. ABC Rocky Mountain Chapter filed formal comments in support of this rule on April 28, 2026, marking a significant moment for merit shop contractors across Colorado and Wyoming. Understanding both federal changes and diverging state enforcement is now essential for commercial and industrial construction firms operating in our region.
On February 26, 2026, the U.S. Department of Labor proposed a new independent contractor rule that would revise the classification of independent contractors under the Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), and Migrant and Seasonal Agricultural Worker Protection Act (MSPA).
Independent contractor classification is a daily risk management issue for commercial and industrial contractors operating across the Denver, Front Range, Northern Colorado, Colorado Springs, and Wyoming markets. Whether you’re a general contractor managing multiple specialty trade subcontractors or a supplier coordinating installation crews, how workers are classified affects your bottom line, legal exposure, and competitive position.
“Independent contractor rule construction” refers to how federal and state agencies construct and apply rules to determine whether a worker is an employee or an independent contractor under the Labor Standards Act FLSA and related laws. Under the Fair Labor Standards Act (FLSA), employees are entitled to minimum wage and overtime pay, while independent contractors are not covered by these protections and are considered to be in business for themselves.
The economic reality test is used to determine whether a worker is economically dependent on the employer or truly in business for themselves. Misclassifying a worker as an independent contractor when they should be classified as an employee can expose businesses to liability for unpaid wages, benefits, taxes, and other penalties. Workers classified as independent contractors often face a significant financial burden, including the responsibility for the full amount of Social Security and Medicare taxes.
Field practices like 1099 “labor-only” tradespeople, labor brokers, and multi-tier subcontracting chains are high-stakes under both DOL’s economic reality test and Colorado’s enforcement posture. Approximately two million workers in the construction industry were misclassified or paid “off the books” as of 2021, creating competitive disadvantages and increasing risks for vulnerable workers.
Federal easing via the 2026 proposed rule does not eliminate state enforcement risk—especially in Colorado, where CDLE and local contracting agencies are actively targeting construction misclassification on public and quasi-public work.
Understanding the regulatory pendulum is critical for Rocky Mountain contractors. During the first Trump administration, DOL issued the 2021 Rule, which emphasized two core factors for determining independent contractor status. The Biden administration replaced this with the 2024 final rule—a broader six-factor totality-of-circumstances approach. Now, under the current Trump administration, DOL proposes to rescind that framework and return to a modified 2021-style test.
In March 2024, DOL issued a final rule under the Fair Labor Standards Act that relies on a six-factor economic reality test with no predetermined factor weighting. This 2024 rule broadened employee status determinations, complicating independent contractor classification and fueling private litigation in construction over overtime pay, travel time, and donning/doffing on multi-employer jobsites.
On February 27, 2026, DOL published the new proposed rule in the Federal Register, expressly proposing to rescind the 2024 framework and reinstate a modified focus on two core factors. The proposed rulemaking aims to apply a unified independent contractor test across the FLSA, FMLA, and MSPA, ensuring consistency in worker classification for minimum wage, overtime pay, and medical leave.
The public comment period ran from February 27 through April 28, 2026. ABC Rocky Mountain Chapter submitted formal comments on April 28, 2026, in support of rescission and clarification for construction contractors.
Critical reminder: Until DOL issues a new final rule, the March 2024 economic reality test remains the governing standard for FLSA enforcement and private litigation. Contractors must still analyze all six factors for now.
The 2024 rule established a broad, multi-factor economic reality test that made it harder to sustain independent contractor status in close cases—including on Colorado and Wyoming job sites.
The classification of a worker as an employee or independent contractor is determined by examining the economic realities of the relationship, focusing on whether the worker is economically dependent on the employer or truly in business for themselves. The economic reality test uses multiple factors to assess whether an employer-employee relationship exists, focusing on the totality of the circumstances rather than any single factor.
Key factors in the 2024 economic reality test include:
Under the 2024 rule, no single factor is controlled, and courts could weigh additional factors differently. This created uncertainty for classifying workers, especially on multi-employer construction projects with GCs, CMs, and specialty subs.
Example: Consider a Wyoming-based framing subcontractor taking recurring projects in the Denver metro area, providing tools and crew but working under a tight schedule and quality control from the GC. Under the 2024 test, the combined probative value of the control and integration factors could favor employee classification despite the 1099 arrangement.
Complying with safety or legal standards does not necessarily indicate employee status. However, written contracts and 1099 status never guaranteed independent contractor classification; actual practice on the jobsite control, investment, and integration mattered more. The IRS uses specific tests that focus on behavioral control, financial control, and the relationship type to determine independent contractor status—but the FLSA uses its own economic reality framework.
The duration of the working relationship typically indicates the nature of the classification, with independent contractors often having project-based engagements rather than ongoing relationships.
DOL’s proposed rule returns to a streamlined economic reality test similar to the 2021 rule, centered on two heavily weighted core factors while still allowing consideration of other factors.
The DOL’s proposed rule emphasizes two core factors in determining independent contractor status:
For the control factor in construction, this includes examining who controls the daily work schedule, sequencing, safety procedures, supervision, change directives, and quality standards on USACE, NAVFAC, federal, and private projects. The degree of control exercised reveals whether an employer-employee relationship exists.
The profit-or-loss factor focuses on whether the worker or subcontractor entity bears business risk and can meaningfully increase profit through managerial decisions—such as bidding multiple jobs, hiring crews, purchasing equipment, and serving multiple clients. A worker with a genuine opportunity for profit demonstrates they operate an independently established business.
Where these two core factors point in the same classification direction—toward employee or independent contractor status—they carry the greatest weight. Secondary considerations (permanency, integration into the potential employer’s business, specialized skills) come into play primarily when core factors conflict.
The proposed 2026 rule includes eight illustrative examples drawn from real-world fact patterns across industries. ABC Rocky Mountain urged DOL to add construction-specific examples, such as:
The Small Business Administration Office of Advocacy estimates that rescinding the 2024 rule and implementing the 2026 proposal could save small businesses approximately $2.31 billion over 10 years in reduced compliance burdens and litigation risk—helping to significantly reduce costs for merit shop firms.
The federal economic reality test contrasts sharply with stricter state-level ABC tests used in California and other states. Importantly, Colorado and Wyoming do not currently impose a broad ABC test for construction under the FLSA.
Under the ABC test, a worker is presumed an employee unless the hiring entity proves three elements:
California’s AB 5 law requires that a worker can only be classified as an independent contractor if they meet all three prongs of the ABC test. Under AB 5, many workers in the construction industry, such as electricians and plumbers, are typically classified as employees rather than independent contractors when hired directly by a contractor.
DOL proposes to continue the economic reality standard rather than adopt an ABC test for federal purposes. However, California courts have consistently held that the state’s AB 5 law and the ABC test take precedence over federal standards for worker classification, meaning contractors cannot invoke federal compliance as a defense against state penalties or misclassification claims.
California’s Division of Labor Standards Enforcement will continue applying state law to classification disputes, meaning that federal compliance does not protect against state penalties for misclassification.
State standards for classification may include stricter tests, such as California’s ABC Test, which remains in effect regardless of federal changes. While Colorado does not impose California-style requirements, certain state statutes and public-owner contract terms may effectively narrow the room for 1099 arrangements in core trade work. Wyoming largely follows federal classification standards and has not adopted an ABC test, but contractors doing multi-state work must carefully track each state’s separate standards.
ABC Rocky Mountain Chapter serves as the merit shop association for Colorado and Wyoming, representing commercial GCs, specialty contractors, suppliers, and service providers across the Denver metro, Front Range, Northern Colorado, Colorado Springs, and Wyoming markets statewide.
On April 28, 2026, ABC Rocky Mountain submitted formal written comments to the U.S. Department of Labor in support of the proposed rescission of the 2024 independent contractor classification rule and the adoption of the streamlined two-factor framework.
Core reasons for support:
ABC Rocky Mountain urged DOL to expand the eight illustrative examples to include construction-industry scenarios—such as a specialty trade subcontractor with its own crew and equipment, an owner’s representative or independent scheduler, and a safety consultant serving multiple GCs.
The chapter also recommended that DOL create a safe harbor provision. Under such classification protection, contractors who reasonably rely on DOL’s final rule and published examples—while documenting their analysis—would receive protection or reduced penalties in enforcement actions. This would provide a substantial likelihood of success in compliance for firms operating in good faith.
ABC Rocky Mountain’s comments referenced the SBA Office of Advocacy cost-savings estimate and stressed the particular burden of shifting tests on small and mid-sized merit shop firms operating on tight margins in the Rockies.
The chapter’s Government Affairs work in Washington, D.C., and state capitals (Denver and Cheyenne) positions these comments as part of a larger advocacy strategy on labor, procurement, and workforce issues. Members can submit comments on future updates to the field assistance bulletin through ABC channels.
While the 2026 federal proposal aims to simplify worker classification, Rocky Mountain contractors face divergent state-level enforcement realities when working in Colorado versus Wyoming.
Colorado does not currently impose a blanket ABC test for construction under the FLSA, but its Department of Labor and Employment (CDLE) has significantly increased enforcement on construction misclassification, wage theft, and prevailing wage compliance since 2022–2025. CDLE audits rose 40% in 2024–2025, yielding $12 million in back wages across over 500 construction investigations.
Key Colorado enforcement tools include:
Colorado public owners—including the City and County of Denver, Denver International Airport projects, and transportation authorities—are incorporating stricter prevailing wage, certified payroll, and worker-classification language into contracts, often presuming W-2 status for on-site craft labor.
Wyoming generally follows federal classification standards with a limited additional state overlay. Wyoming’s enforcement posture remains comparatively pro-business, with fewer aggressive misclassification investigations (~50 construction audits annually) in the commercial construction sector.
Independent contractors lack the right to form unions or bargain collectively under the National Labor Relations Act. Additionally, independent contractors must secure their own private workers’ compensation insurance when injured on high-risk sites.
Contractors doing cross-border work (e.g., Cheyenne–Northern Colorado corridor) must adjust classification practices, subcontract templates, and documentation to meet Colorado’s stricter expectations, even if Wyoming operations remain more flexible.
Rocky Mountain contractors regularly pursue USACE civil works, federal facility, and military projects where federal labor standards intersect with state enforcement.
Although the independent contractor test arises under the Fair Labor Standards Act, misclassification issues can spill into Davis-Bacon prevailing wage compliance, certified payroll accuracy, and federal contract performance evaluations. Misclassification creates specific legal obligations that extend beyond wage issues.
USACE Construction Quality Management (CQM) expectations assume clear chains of command, documented subcontractor status, and accurate workforce reporting—which become harder to defend if core trades are treated as independent contractors rather than the potential employer’s own employees.
Contractors bidding on federal and military work in Colorado (Fort Carson, Buckley Space Force Base, and FE Warren AFB projects pulling Colorado labor) should default to a conservative classification of field craft as employees, using independent contractor status primarily for legitimately separate business entities and professional services working in an integrated unit with clear independence.
The 2026 rule is not final yet; the 2024 economic reality test still governs, and Colorado enforcement is accelerating. This regulatory urgency demands action now.
The Department of Labor’s enforcement arsenal includes civil penalties, debarment, and stop-work orders, which can be significantly amplified by misclassification findings. Taking proactive steps helps ensure compliance and reduces exposure.
Scope your audit around the highest-risk categories: 1099 field labor, owner’s reps, safety consultants working on site, and solo “subcontractors” without their own employees.
Recommended audit process:
Written contracts alone cannot create independent contractor status, but well-drafted agreements aligned with reality are critical defense tools in misclassification investigations and private litigation.
Key contract elements:
ABC Rocky Mountain Chapter serves as the primary conduit of insider regulatory intelligence on labor and employment issues for merit shop contractors.
Member resources include:
HR leaders and CFOs should update onboarding and procurement checklists so that new engagements with 1099 individuals or small firms trigger a documented classification review under other federal laws and relevant state rules.
DOL will review comments from ABC, ABC Rocky Mountain, and other stakeholders after the April 28, 2026, deadline. A final rule may be issued later in 2026 or early 2027, potentially with modifications.
Until a final rule is issued and effective, the 2024 economic reality totality-of-circumstances test still governs Fair Labor Standards Act enforcement and private litigation. Contractors must not prematurely rely on the proposed two-core-factor framework in court.
Even after a final rule takes effect, plaintiffs’ attorneys in Colorado may continue to assert state-level misclassification and wage claims citing CDLE guidance. Federal easing does not eliminate litigation risk for unpaid wages or claims under the seasonal agricultural worker protection act on certain projects.
Wyoming contractors should remember that federal FLSA requirements still apply, and the DOL’s enforcement arm can audit or investigate Wyoming projects—especially when there are complaints or federal funds involved.
Treat 2026–2027 as a transition period: align internal practices with both current and anticipated rules while following ABC Rocky Mountain’s updates as the final rule and enforcement patterns emerge.
No. As of mid-2026, the March 2024 economic reality rule remains in force for Fair Labor Standards Act purposes until DOL issues a new final rule with an effective date. Current audits and classification decisions must still use the 2024 factors. The proposed rule signals likely future changes but does not yet govern.
Contractors must comply with both federal and state law. Where Colorado’s enforcement posture or contract terms are more protective of workers than federal law, they effectively become the practical standard for Colorado projects—especially on public and prevailing wage work. Federal compliance alone does not shield you from state penalties.
Distinguish between remote professional services (more likely to qualify under economic reality) and on-site, integrated roles. Document where work is performed and the nature of control exercised. Consult counsel before assigning frequent on-site duties in Colorado to workers classified as independent contractors serving as an integrated unit with your field operations.
The SBA Office of Advocacy’s estimate represents aggregate ten-year savings for small businesses nationwide from reduced compliance complexity and litigation exposure—not a direct rebate. Individual companies benefit from lower legal risk, clearer rules, and more efficient internal compliance processes, allowing a focus on winning work and delivering projects.
ABC Rocky Mountain connects members with experienced employment counsel, shares model practices and training for reclassifying workers compliantly, and provides briefings on communicating changes to affected workers while maintaining project delivery and client relationships. Contact the chapter to access these resources and benchmark against industry peers.
