A contingent workforce program that spent eighteen months training its intake team on the Department of Labor's 2024 six-factor classification test now has a manual built on a standard the government has already stopped enforcing. In February 2026, the DOL proposed replacing that test with a five-factor version that leans almost entirely on two questions: who controls the work, and who carries the risk of profit or loss. Nothing about the workers on assignment changed. The rule that decides whether they count as employees or contractors did. For a program managing classification, co-employment, and benefits eligibility across dozens of suppliers and every state a worker touches, that kind of shift is exactly why a compliance audit has to run on a recurring cadence, built into the program the same way a budget cycle or a renewal date is.
The Classification Test Underneath Your Program Just Moved Again
Under the DOL's 2024 rule, employers weighed six factors with no single one controlling the outcome, a "totality of circumstances" approach the agency itself has since called unworkably vague. The proposal it published on February 27, 2026, replaces that with five factors instead. Two of them, control over the work and the worker's opportunity for profit or loss based on their own initiative and investment, count as core, and the DOL says that when both point the same direction, there is "a substantial likelihood" the classification is correct. The 2024 rule technically still governs private lawsuits, but the agency's own investigators stopped applying it months ago, reverting instead to the pre-2024 economic-reality framework.
None of this touches the IRS's separate common-law control test, the one still referred to informally as the 20-factor test even though the IRS itself now groups those questions into three broader categories: behavioral control, financial control, and the type of relationship. A worker can clear one agency's standard and fail another's, and an audit that only checks the standard a program adopted at launch will miss whichever test now governs. Confirm which test each supplier contract and onboarding script currently points to, and update that reference whenever the underlying rule does, rather than re-litigating every worker's status from scratch. Jackson Lewis has tracked the rule change in detail for programs that need the current version in front of legal before the next supplier renewal.
Does Your Contract Language Actually Stop Co-Employment Risk?
A master services agreement that says the supplier is the sole employer does not settle co-employment exposure on its own. Courts and agencies look at what actually happens on the ground: who sets the worker's schedule, who disciplines or terminates them, who negotiates the pay rate directly instead of the bill rate, and how long the assignment has run past what looks like a temporary need. A hiring manager who emails a contingent worker's supervisor directly to change their hours, without looping in the supplier, has just generated evidence a plaintiff's attorney would use. Working with an Employer of Record structures around this exposure by keeping the legal employment relationship, and the control that comes with it, in one place instead of split across the client and the supplier.
So an audit here has to sample actual manager behavior against a handful of active assignments rather than re-reading the MSA template alone. Pull five or six placements from different suppliers and different business units, then check whether the paper trail matches what the hiring manager describes doing day to day. The gap between the two is where co-employment risk actually sits.
ACA Eligibility Doesn't Stop at the Edge of Your W-2 Roster
How many full-time equivalents does your contingent workforce actually add to the ACA calculation? Applicable large employer status kicks in at 50, and a full-time employee is anyone averaging 30 hours a week or 130 hours a month. Contingent workers who stay on assignment long enough, and at high enough hours, can factor into that count depending on who the IRS treats as the common-law employer for that specific engagement. A program that only counts direct payroll when checking ALE status is measuring against the wrong number if a meaningful share of its contingent population would otherwise qualify. The IRS's guidance on applicable large employer status lays out the hours math directly, and it is worth re-running against your actual contingent headcount rather than assuming the number hasn't moved since the program was designed.
A role budgeted as a twelve-week bridge that turns into fourteen months can push a worker over that full-time threshold even if nothing else about the engagement changed. Average assignment length is the detail that quietly creeps upward while everyone assumes the original scope still applies.
The Cost of a Fragmented Vendor List
Every one of these risks compounds as the supplier list grows without a shared standard. Ten suppliers running ten different classification checklists means ten different interpretations of a rule that just changed underneath all of them at once. A structured contingent workforce program puts one classification standard and one escalation path in front of every supplier feeding the program, instead of trusting each vendor to keep its own version current. Vendor rationalization gets pitched as a cost play, and it can be one, but the compliance case is usually the stronger one: fewer suppliers means fewer versions of the same rule to keep straight.
Run the Audit as an Ongoing Habit
File an audit report and treat the compliance question as answered, and the findings expire the moment anything upstream changes: a new rule, a new supplier, an assignment that runs longer than planned. Tie the next audit to those events instead of a date on the calendar: a new supplier onboarding, an assignment crossing six months, a state added to the program's footprint, or a federal rule change like the one moving through comment period right now. Each of those is a trigger, and a program that treats them that way catches drift before an agency or a plaintiff's attorney does it instead.
FoxHire sits inside this picture as the Employer of Record for the workers a program places, keeping the classification call and the co-employment boundary with one accountable party instead of whatever a given supplier happens to document, and with the paperwork ready before an auditor asks for it. Book a demo if it would help to see how that changes what your next audit actually has to check. Either way, run the audit against the rule that governs today, not the one your program was built on.
Transform Your Hiring Process Today
Experience seamless hiring with our platform. Get started with a demo or sign up now!
FAQs
Find answers to common questions about our services and the contingent workforce management.
What changed between the DOL's 2024 independent contractor rule and its 2026 proposal?
The 2024 rule used six unweighted factors under a "totality of circumstances" test. The rule proposed on February 27, 2026, uses five factors instead. Two of them, control over the work and the worker's opportunity for profit or loss, count as core and can decide the outcome on their own when they point the same direction.
Do contingent workers count toward ACA applicable large employer status?
They can. ALE status is based on full-time equivalent employees, and a worker averaging 30 hours a week or 130 hours a month counts as full-time regardless of whether they are on your direct payroll or placed through a supplier, depending on who the IRS treats as the common-law employer for that engagement.
Does a supplier's 1099 classification protect the client company from co-employment risk?
Regulators and courts look past the 1099 label to actual practice: who directs the worker's schedule, who disciplines them, and how long the assignment has run beyond its original scope. Contract language describing the worker as an independent contractor carries far less weight than what a hiring manager actually does day to day.
How often should an enterprise contingent workforce program run a compliance audit?
Treat it as ongoing rather than annual. Trigger a review whenever a new supplier joins the program, an assignment passes the six-month mark, the program expands into a new state, or a federal classification rule changes, rather than waiting for a fixed calendar date.
What's the fastest way to reduce classification risk across multiple staffing vendors?
Standardize the classification checklist, contract language, and escalation process across every supplier feeding the program instead of letting each one run its own version. Fewer independent interpretations of the same rule means fewer places for the same gap to hide.
Still have questions?
We're here to help you with any inquiries.