DOL Proposes New Independent Contractor Rule – What Could This Mean for Mortgage?
The U.S. Department of Labor (DOL), on February 27, 2026, issued a proposed rule that would again revise how worker status is analyzed under the Fair Labor Standards Act. For mortgage lenders and brokers using 1099 loan originators, contract processors, or similar models, the proposal is worth close attention.
The proposal would rescind a 2024 rule, replacing it with an approach closer to DOL’s 2021 framework under the first Trump administration. It would also apply the same analysis under the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act.
The comment deadline is April 28, 2026.
What the Proposed Rule Would Do
The proposed rule would return to a tiered approach to the economic reality test that the DOL used in 2021 but later abandoned. In the proposed rule, the DOL explains that the 2024 rule’s open-ended balancing of six equally weighted factors failed to provide the clarity and predictability that employers and workers need to properly classify workers. The proposed rule would restore a two-tier structure in which two factors carry more weight than the rest. Where both of those core factors point toward the same classification, the rule says that outcome would very likely be correct.
At a high level, the two core factors carrying the most weight would be:
Control over the work
o Who sets the schedule, production expectations, and workflow
o Who controls pricing, assignment acceptance, territory, and ability to work for others
o Whether the company monitors performance, requires reports, or directs how the work is done
o Whether real-world practice shows independence, not just contract language
Opportunity for profit or loss based on initiative or investment
o Whether the worker can increase profit through business judgment, marketing, hiring help, or managing expenses
o Whether the worker has a meaningful capital or business investment
o Whether earnings depend mainly on the worker’s own enterprise rather than a fixed pay structure set by the company
When both core factors point in the same direction, the rule says there would be a substantial likelihood that the classification is correct. The other factors considered in the analysis would include:
Skill required – The presence of specialized skill would not by itself indicate independent contractor status. The relevant inquiry is whether the worker applies that skill in the context of an independently operated business.
Permanence of the relationship – Relationships that are indefinite, continuous, or exclusive would tend to weigh toward employee status. Relationships that are project-based or clearly nonexclusive would tend to weigh toward independent contractor status.
Whether the work is part of an integrated unit of production – Where a worker’s function is embedded in the company’s production process for a good or service, this factor would weigh toward employee status. Where the worker’s function is segregable from that process, it would weigh toward independent contractor status.
The proposed rule also states that actual practice carries more weight than what may be contractually or theoretically possible, and includes eight illustrative examples applying the factors to specific fact patterns.
Why Mortgage Companies Should Pay Attention
For mortgage companies, the proposal could affect worker models that rely on contractor treatment but operate with close controls. Examples include:
1099 LOs working under company branding, pricing limits, required systems, assigned leads, set expectations, or practical exclusivity
Contract processors or underwriters working inside the lender’s workflow, on the lender’s systems, and under lender-set turnaround and quality requirements
Branch or team structures where loan originators and their managers operate under a contractor label but function day-to-day under the lender’s brand, systems, and direction with little real independence
A contractor label alone will not decide the issue. A relationship that looks like employment in practice likely will be treated as employment regardless of what any agreement says.
Practical Steps to Consider Now
Expect increased pressure on management to take an aggressive approach to allowing 1099 LOs
Understand that the contractor vs employee dichotomy involves many different risks under many different statutory and regulatory regimes
Assess the risks of treating LOs as contractors under RESPA, TRID, investor agreements, federal and state laws.
Review contractor classifications for loan originators, processors, underwriters, inspectors, and similar roles
Compare written agreements to actual day-to-day practice
Prepare comments by the April 28, 2026 deadline if the proposal affects your business model
Want to discuss LO classification, contractor risk or submit comments?
Contact troy@garrishorn.com.