Audit 1099 Roles Against the DOL Two-Factor Test

The label will not save you

If a driver, cleaner, or outside staff member is on your books as a contractor, the contract label is only the beginning. The work is the test. The Labor Department's (DOL) final independent contractor rule is expected to use a two-factor classification standard centered on control over the work and entrepreneurial opportunity. The White House Office of Information and Regulatory Affairs, or OIRA, took the rule into review on September 28, 2026; the rule addresses employee versus independent contractor status under the FLSA and FMLA. A separate independent-contractor classification proposal reached OIRA for final review in late September 2026.

The review window gives HR leads time to audit each role before the rule takes effect. Misclassification can create wage, overtime, and leave consequences if the company later treats the worker as an employee. The audit should separate what the law requires from what is good practice. Keep the facts current.

Score the role, not the paperwork

Use the checklist for each role. It is a quick test, not a legal opinion. These two factors drive reclassification risk. A yes to company control is a risk marker. A yes to worker business opportunity is a sign the role may survive as a contractor. If the answers are mixed, write down the facts that support each side.

• Can the worker set their own schedule, or does the company assign shifts and deadlines?
• Does the company dictate how the work is done, including steps, quality standards, and training?
• Does a manager supervise day to day, review output, or discipline the worker for performance?
• Does the company provide the tools, equipment, software, uniforms, or workspace?
• Is the worker required to work only for the company, or can they take other clients?
• Is the worker integrated into the company's core operations, such as drivers on a fixed route or cleaners on a set site?
• Does the worker make a meaningful investment in equipment, inventory, insurance, or business overhead?
• Can the worker realize a profit or loss by managing costs, pricing, or efficiency?
• Does the worker market their services, maintain a business identity, or serve clients outside the company?
• Does the worker make independent business judgments about how to deliver the work?

If a role fails either factor, flag it. Correct the classification, contract terms, or payroll.

Fix the gap before the rule lands

The audit should produce a role inventory, a risk flag, and a correction plan. Each flagged role needs a decision: employment, true independent contractor, or hybrid that needs redesign. Employment roles move to payroll, with wages, hours, benefits, and leave eligibility set. True contractor roles require an agreement that matches the facts and no employee-style controls. Hybrid roles call for a work model change before the label changes. Update onboarding, contracts, and payroll to match the corrected role.

Keep a short record for each role: job duties, schedule, tools, payment, other clients, and supervision. Note who assigns work, who provides tools, and how payment is set. Update the record when the role changes. A contractor agreement must match the record. Payroll roles require wage and hour tracking, leave eligibility, and benefits updated. The law requires classification based on the work; good practice is to document the facts so the classification is defensible.

A DOL technical amendment taking effect on May 15, 2026, discarded the invalidated 2024 overtime rule and reinstated the 2019 pay level and job-duty requirements for exempt executive, administrative, and professional roles. Payroll changes belong in the same audit.

Do not wait for a dispute to force the answer. Run the audit now, document the facts, and fix the roles that do not survive before the rule takes effect.