WASHINGTON – U.S. Senator Mike Lee (R-UT) today introduced the 21st Century Worker Act to deregulate employment processes and provide flexibility for independent contractors and employees. The bill will simplify employee classifications to cut red tape around hiring independent contractors and flexible work arrangements.

“Gig workers and independent contractors face too much red tape when starting a job,” said Senator Mike Lee. “Employers are so scared of misclassifying their employees that they often give up altogether, leaving workers out of a job and our economy worse off. The 21st Century Worker Act cuts through the red tape to give workers and employers flexibility instead of a bureaucratic headache.”

The 21st Century Worker Act is endorsed by Heritage Action, the Small Business & Entrepreneurship Council, and the Competitive Enterprise Institute. 

“SBE Council applauds Senator Mike Lee for introducing S. 2159, the 21st Century Worker Act, a critical piece of legislation that promises to restore clarity and balance to federal worker classification policy. Independent contracting is a vital source of income mobility, flexibility and entrepreneurial opportunity. For many individuals, it serves as a bridge to full business ownership, allowing them to test ideas and build client networks. Small businesses likewise depend on independent contractors for projects or niche work and to scale responsibly. For years, SBE Council has raised concerns about inconsistent and expansive federal interpretations that create confusion and expose small businesses and independent contractors to legal risk. These heavy-handed classification standards discourage legitimate contracting relationships and threaten the flexibility and autonomy that millions of Americans actively choose. S.2159 replaces ambiguity with certainty by establishing a clear and consistent bright-line framework across federal labor and tax law. It creates a structure that allows workers and businesses to mutually elect classification when traditional categories do not squarely apply. The modernization of the independent contractor framework will reduce misclassification risk, protect choice, strengthen the entrepreneurial ecosystem, and sustain economic growth. SBE Council urges Congress to take swift action on S. 2159 to ensure federal policy supports, rather than undermines, flexible work and small business growth in the 21st century.” – Karen Kerrigan, President & CEO, Small Business & Entrepreneurship Council

“The 21st Century Worker Act addresses a real problem faced by workers and employers alike: the current patchwork of workplace laws and regulations (The Fair Labor Standards Act, National Labor Relations Act, Internal Revenue Code, etc.) creates uncertainty over whether a worker is a traditional employee or a freelancer in business for themselves. "Worker classification" standards should be clear, easy to apply and not inherently hostile to innovative workplace arrangements. The 21st Century Worker Act would create a common-sense, bright-line test across federal labor and tax statutes to settle this issue while preserving the rights of workers to seek out these new types of arrangements if they so choose. The Labor Department is currently on its fourth revising of this worker classification rule in as many presidential administrations. There is no reason to believe that the rule won't continue to be rewritten with each partisan swing of the executive branch. This volatile situation benefits neither workers nor management. Congress should take up legislation like the 21st Century Worker Act that resolves the matter once and for all.” – Sean Higgins, Research Fellow, Competitive Enterprise Institute

Background

Current federal labor policy is complex and openly hostile to flexible work arrangements. This confusion arises because different laws, including the Fair Labor Standards Act (FLSA), the U.S. tax codes, and the National Labor Relations Act, apply varying tests to evaluate whether an individual is an employee or an independent contractor.  As a result, businesses frequently avoid hiring independent contractors due to potential misclassification risks and liability.  

In 2025, independent professionals comprised 4.1% of the U.S. labor force, with an estimated 6.9 million skilled independent workers generating a combined $319 billion in revenue.  As more individuals turn to flexible work arrangements instead of traditional nine-to-five jobs, the growing demand for such options requires updated regulations that reflect current workforce preferences.

In October 2022, the Department of Labor (DOL) issued a Notice of Proposed Rulemaking that created a six-factor “economic realities” test under the FLSA.  This test emphasized economic dependence and favored employee status in gig economy and flexible work scenarios. The proposal failed to recognize that workers often prefer alternative work arrangements. Luckily, under the current administration, the DOL issued guidance in May 2025 stating they would no longer enforce the DOL ruling from the Biden administration.  However, Congress must enact a permanent solution to ensure clarity and stability.

Senator Lee’s 21st Century Worker Act establishes a clear and consistent bright line test for federal labor and tax law. By outlining the most common factors for classifying workers as independent contractors or employees, this test eliminates ambiguity and empowers businesses and workers to pursue flexible arrangements confidently.

The 21st Century Worker Act:

• Creates a bright line test by outlining the most common factors that make a worker an independent contractor and the most common factors that make a worker an employee. 
• Creates a third category for workers who do not cleanly meet the definition of an independent contractor or employee. It is impossible for the government to conceive of every possible work arrangement. This bill outlines a process for workers and businesses to mutually elect worker status in instances when a worker cannot be cleanly classified as either an independent contractor or an employee. 
• If the business and its employee cannot agree on status, the worker will be classified as an independent contractor by default.
• Commissions a GAO study to identify how harmonizing other laws with this bright-line test would impact workers and payors.