For HVAC, plumbing, electrical, roofing, and landscaping owners who have been waiting for the Department of Labor to clean up the 1099 issues, here is the short version: the federal pendulum is swinging back, but the floor you are standing on has not moved.

On February 27, 2026is , the DOL published a proposed rule to rescind the 2024 independent-contractor regulation and reinstate the older, more employer-friendly "economic reality test." The news made the trade press, and CPA firms fielded the same question from clients running everything from a two-truck plumbing shop to a forty-crew commercial mechanical operation: "Can I go back to using 1099 helpers the way I used to?"

The honest answer is: Not yet, and in some states, not at all. Here is why.

What the DOL did

The 2024 rule (Biden-era) used a six-factor "totality of the circumstances" test that gave every factor equal weight. It made aggressive use of 1099s harder to defend.

The 2026 proposed rule would reinstate the 2021 framework. It uses a five-factor “economic reality” test that gives extra weight to two "core" factors:

1. The nature and degree of the employer's control over the work.
2. The worker's opportunity for profit or loss based on initiative and investment.

DOL’s own reasoning for rescinding the 2024 rule: it "lacked clarity, created a chilling effect on legitimate independent contractor arrangements, and featured redundant factors."

This is a real shift in posture. It is not yet a rule. It governs Fair Labor Standards Act (FLSA) cases only, minimum wage, overtime, and federal wage-and-hour enforcement. It does not change how the IRS classifies workers for tax purposes. It does not change any state law.

That last sentence is the one most owners are missing.

The timeline

• 2021 DOL finalizes the five-factor economic reality test with two "core" factors.
• January 2024 Biden-era DOL rule takes effect; six-factor totality test replaces the 2021 framework.
• February 27, 2026, DOL publishes a proposed rescission of the 2024 rule in the Federal Register.
• April 28, 2026, 60-day public comment period closes.
• Expected late 2026, Final rule published after DOL reviews comments.
• TBD Effective date set in the final rule, typically 30 to 60 days after publication. Litigation is almost certain.

Plan around a final rule that could land before year-end. Do not plan around it being in effect today.

What does this mean in DeBlanc's footprint?

We serve trade businesses across Virginia, DC, Maryland, Pennsylvania, and New York City. The DOL change affects each of those markets differently because state classification rules are independent of federal rules and, in several cases, much stricter.

Virginia: State law uses a common-law right-to-control test, like the IRS. No major statutory shift expected from the DOL change. Misclassification penalties under Va. Code § 40.1 is real, but enforcement has been moderate. The federal change gives you a little more breathing room on FLSA exposure. It does not change your state UI or workers' comp posture.

Maryland: The Workplace Fraud Act specifically singles out construction and landscaping. There is a statutory presumption of employment, and penalties can reach $20,000 per misclassified worker. The federal rule change has no effect here. A Maryland roofing or landscaping crew where the "subs" look like employees on paper is still a Maryland problem.

DC: The District uses the ABC test for unemployment insurance and aggressively enforces the Wage Theft Prevention Act. Federal posture is largely irrelevant to DC enforcement.

Pennsylvania: The Construction Workplace Misclassification Act (Act 72) applies to a strict ABC test specifically to construction work. To classify a worker as an independent contractor in Pennsylvania construction, you must clear all three prongs, including the requirement that the worker is "customarily engaged in an independently established trade." Federal rule changes do not loosen this.

New York City: New York's Construction Industry Fair Play Act creates a statutory presumption that any worker on a construction site is an employee. Penalties run $2,500 for a first violation and $5,000 per worker for subsequent violations. Willful misclassification carries criminal liability. Add NYC's Freelance Isn't Free Act on top, and you have one of the toughest classification environments in the country. The DOL change does not move this needle.

The pattern is the same in every state we serve: the federal pendulum is swinging, but the binding constraint on most of our clients is state law and the IRS, not the DOL.

The three-question 1099 assessment that every trading business should run this quarter

Whether the federal rule is finalized in November or struck down in court next year, the right move now is to clean up your classification posture. The diligence exercise we run with clients is short:

1. Tenure: Has this sub worked for you continuously for more than twelve months? Long tenure with a single payer is one of the loudest signals of a misclassified worker.
2. Exclusivity: Does this sub work only for you, or do they take work from other contractors? A sub who has no other customers is rarely independent under any test.
3. Control: Do you set their hours, dictate how the work gets done, supply the tools and trucks, and require them to take what you assign? If yes, it does not matter what the contract says.

If you answer "yes" to two of three on a given worker, you have an IRS and state exposure regardless of what the DOL does. That is the conversation worth having now, while you can proactively fix the classification rather than in response to an audit, a workers' comp claim, or a former worker filing a wage complaint.

Why is this worth doing now?

Cleaning up classification before the federal rule finalizes is one of the highest-ROI exercises a growing trade business can run this year. Three reasons:

You control the cost: Reclassifying proactively means you absorb payroll tax and benefits costs on your terms, phased into your budget. Reclassifying after a state audit or DOL investigation means back taxes, FICA gross-up, FUTA, state assessments, penalties, and interest, often three years deep.

Bonding and lending are easier: Every bonding agent and asset-based lender we work with has tightened classification review in the last two years. A clean W-2/1099 structure improves bonding capacity and borrowing terms. We see it on every credit application.

Your business is becoming sellable: HVAC, plumbing, and electrical platforms bought through Apex, Wrench, Sila, and Redwood do classification diligence early. A trade business with a clean classification posture trades at a meaningfully higher multiple than one with a 1099-heavy workforce that buyers must unwind post-close.

The takeaway

Use the next 90 days to look closely at your sub roster, identify the workers who appear to be employees regardless of what the paperwork says, and put them on a path. The federal rule will land when it lands. Your books should be ready before they do.

If you would like us to walk through your sub roster with you and stress-test classification under your state's rules, that is a normal first conversation for our fractional CFO clients. Book a discovery call.