By: Christopher Parrella, Esq., CPC, CHC, CPCO
Parrella Health Law, Boston, MA.
A Health Care Provider Defense and Compliance Firm.

The U.S. Department of Labor has released a proposed rule that would once again reshape how businesses determine whether a worker is an employee or an independent contractor. For healthcare providers who rely heavily on contractor relationships including physicians nurse practitioners therapists coders consultants and telehealth clinicians this development deserves close attention.

The proposed rule titled “Employee or Independent Contractor Status Under the Fair Labor Standards Act Family and Medical Leave Act and Migrant and Seasonal Agricultural Worker Protection Act” would rescind the 2024 regulation issued under the previous administration and replace it with a framework that closely resembles the independent contractor analysis used during the first Trump administration. At the center of the new proposal is the familiar “economic reality test.” The test asks a simple but powerful question: is the worker economically dependent on the employer for work or is the worker operating an independent business.

Under the proposed rule, two core factors carry the most weight. The first is the degree of control exercised over the worker’s services including scheduling supervision and operational direction. The second is the worker’s opportunity for profit or loss based on their own initiative investment and entrepreneurial decision-making.

Additional factors may also be considered including the skill required for the work, the permanence of the working relationship and whether the worker’s role is integrated into the employer’s core operations. These elements are intended to determine whether the worker is truly operating independently or functioning as part of the employer’s business.

For healthcare providers, independent contractor relationships are common throughout the industry. Physician medical directors, telemedicine providers, behavioral health clinicians, consulting physicians, locum tenens providers and even billing or compliance professionals are frequently engaged as contractors rather than employees. If the regulatory framework changes the analysis of those relationships may change as well.

Misclassification risks can be significant. If a worker who should be treated as an employee is instead classified as an independent contractor, providers may face liability for unpaid wages overtime payroll taxes benefits and potentially penalties under federal and state law. In healthcare those risks can also intersect with Stark Law Anti-Kickback Statute compliance and reimbursement considerations.

The proposal is not final. The Department of Labor will accept public comments through April 28, 2026, after which the agency will determine whether and how to finalize the rule.

Call to Action for Healthcare Providers: Now is the time for healthcare organizations to review their workforce models. Providers should identify which roles are classified as independent contractors and analyze whether those arrangements satisfy the economic reality test being proposed. Pay particular attention to factors such as scheduling control compensation structure exclusivity requirements and the degree to which the contractor operates an independent business.

Organizations should also work with counsel to ensure contractor agreements accurately reflect the operational reality of the relationship and do not unintentionally create evidence of employee-level control. The independent contractor issue has been one of the most frequently litigated labor topics in recent years and healthcare organizations are not immune. A proactive review today can prevent costly disputes tomorrow.

If you have any questions or comments about the subject of this blog or want assistance evaluating independent contractor relationships within your organization, please contact Parrella Health Law at 857.328.0382 or Chris directly at cparrella@parrellahealthlaw.com.