How does that work?

If you said, "How's it working out for you?", it would be "How is that working for you?"

It all depends on context. If youre unsure, say it without the abbreviation to see which makes sense (is or does).

How does that work? => How's that work? How is that working? => How's that working? How would that work? => How'd that work? How did that work? => How'd that work?