The Labor Department’s New Contractor Test Has Cleared White House Review. What It Means for 1099 Martial Arts Instructors

A final U.S. Department of Labor rule that would change how the agency decides whether a worker is an employee or an independent contractor has cleared White House review and is awaiting publication. It would replace the 2024 test with one built on two “core” factors: how much the business controls the work, and whether the worker has a real opportunity for profit or loss. For the many martial arts schools that pay instructors per class on a 1099, it is the most consequential federal employment change of the year. It is also less of a free pass than some owners will assume.

Where does the rule stand?

• Proposed: February 27, 2026, 91 Fed. Reg. 9932 (RIN 1235-AA46). Comments closed April 28, 2026.
• White House review: the Office of Information and Regulatory Affairs received the final rule September 28, 2026, and finished its review in October, Bloomberg Law reported on October 30.
• Not yet law: as of November 9, 2026, the final rule had not appeared in the Federal Register. Final rules typically take effect about 60 days after publication.

In the meantime, the Labor Department stopped applying the 2024 rule in its own investigations in May 2025 (Field Assistance Bulletin 2025-1), using its 2008 guidance instead. The 2024 rule still governs private lawsuits until it is replaced.

What is the new test?

As proposed, the analysis turns first on two core factors: the business’s control over the work, and the worker’s opportunity for profit or loss through their own initiative or investment. Other factors, such as skill and the permanence of the relationship, come in if those two do not settle the question. The final text may differ from the proposal and should be read when published.

What does that mean for a martial arts school?

Apply the two core factors to a typical instructor:

• Control. If you set the class schedule, the curriculum, the uniform, the rank requirements and how students are spoken to, you control the work. Most schools do, for good reason.
• Profit or loss. If the instructor is paid a flat rate per class, brings no students, sets no prices, carries no costs and cannot grow the business on their own initiative, there is no real opportunity for profit or loss.

An instructor who teaches your program, on your schedule, to your students, for a set fee will usually look like an employee under either test. The new rule is friendlier to genuinely independent arrangements, such as a seminar instructor or a specialist who rents mat time and runs their own program. It does not convert a regular staff instructor into a contractor.

The federal rule is also only one test. The IRS has its own, and many states, including California, Massachusetts and New Jersey, apply stricter standards to wage, unemployment and workers’ compensation claims. A school can satisfy the Labor Department and still owe back wages under state law.

Frequently asked questions

Is the new independent-contractor rule final?

It has cleared White House review but, as of November 9, 2026, had not been published in the Federal Register, so it is not yet in effect.

Can I pay my instructors as 1099 contractors under the new rule?

Only if they are genuinely independent. An instructor teaching your curriculum on your schedule for a set fee is likely an employee under both the old and new tests.

Does the federal rule override state law?

No. States apply their own tests for wage, unemployment and workers’ compensation purposes, and some are stricter.