I’ve talked to enough founders scaling past their first 50 employees to know the pattern. Someone reads that federal rules on independent contractor classification are getting friendlier, and they relax. They start hiring contractors faster, expanding into new states, and treating each new hire as a quick win rather than a compliance decision.

That relief is premature. The Department of Labor proposed a new rule in February 2026 that would make it easier, at the federal level, to classify a worker as an independent contractor rather than an employee. But federal rules are the floor, not the ceiling. States like California, Massachusetts, and New Jersey apply their own, often stricter, tests — and none of them care what Washington just decided. New Jersey proved that this summer, when the state reached a $2.77 million settlement with logistics company STG Logistics over misclassifying hundreds of truck drivers as independent contractors. It was the first case resolved under a 2021 New Jersey law that lets the state sue employers directly over misclassification, entirely separate from federal enforcement.

Any federal change is one input into your hiring strategy, not the whole picture, and it only means something once you’ve checked it against the states you actually operate in. For companies scaling through contractors, remote hires, or expansion into new states, that gap between federal and state rules is exactly where risk hides. Here’s how I’d think about closing it:

1. Run a state-by-state check before you hire, not after

A contractor arrangement that clears federal scrutiny can still fail a state test. And it can pass in one state while failing in the next. Say, for example, a marketing company classifies a marketing consultant in Texas as an independent contractor. Texas relies on a common-law control test that’s generally considered business-friendly, and the classification holds. Hire someone in the identical role in California, though, and the calculus changes. California’s ABC test asks whether the work falls outside the company’s usual course of business. For a marketing company hiring a marketing consultant, it doesn’t. So, the same role that worked in Texas fails in California.

That’s not a narrow risk. An estimated 11.9 million people in the U.S. work as independent contractors as their primary job, according to the Bureau of Labor Statistics ’ most recent contingent workforce survey. That’s likely a conservative count, since it only captures contractor work as someone’s main job, not secondary income. Any company hiring contractors across state lines is playing this same game somewhere in its workforce.

The practical guidance from employment attorneys has consistently been the same, whether you’re hiring someone in Maine or Oregon: Classify workers based on the rules in the jurisdiction where they perform the work, not the jurisdiction where your company is headquartered. Building that check into your hiring process, before an offer goes out, costs a lot less than fixing it after the fact.

2. Revisit your classification practices when you scale into a new state or hiring model

Growth is exactly when classification agreements stop matching reality. A contractor relationship that made sense when someone worked a few hours a week for one client can look very different once they’re full-time and exclusive. The proposed federal rule change is a good forcing function to reexamine how your company classifies its workforce , but the real trigger should be internal. Every time you add a state or change how a role is structured, the classification question needs to be asked again.

I spoke to Kara Hertzog , president of Innovative Employee Solutions, a provider of remote and contingent workforce solutions across the U.S. and more than 150 countries, about this. “I’d encourage founders to stop thinking about workforce flexibility and compliance as competing priorities,” she said. “The right question isn’t simply, ‘Should I hire employees or contractors?’ It’s, ‘What’s the right engagement model for this business need, and is it compliant in the jurisdiction where the work is being performed?’ That mindset gives companies more flexibility while reducing the risk of making classification decisions based solely on cost or speed.”

3. Build flexibility into how you hire

Compliance audits catch problems, but they don’t prevent the next one. That’s why more growing companies are pairing audits with more adaptable hiring structures, including employer of record and agent of record arrangements, so they can add talent in a new state without rebuilding their compliance process from scratch each time.

Hertzog put the underlying mistake clearly. “The biggest mistake we see growing companies make right now is treating hiring as a series of one-off decisions rather than as part of a broader workforce strategy,” she said. “When they move quickly into new states or engage contractors without first evaluating classification, compliance, and long-term workforce needs, they expose themselves to costly fines and penalties.”

That’s the shift Hertzog sees separating companies that scale well from ones that get burned. “The strongest organizations are building flexibility into their workforce strategy while putting the right governance and compliance processes in place from the start,” Hertzog explained.

Federal rules will keep shifting. That’s been true for most of the last decade, and it will likely stay true. Companies get hurt when they treat any single rule change, federal or state, as the whole story instead of one piece of a bigger picture. Growth doesn’t wait for regulatory clarity, so your hiring strategy shouldn’t either.