Biden independent contractor rule has implications for financial services

The Department of Labor unveiled a proposal today that would make it harder for companies to treat workers as independent contractors, potentially upending several industries, including financial services.

Who is considered a company's employee, who is entitled to various legal protections, and who is an independent contractor has shifted over the last decade. Workers are increasingly turning to the courts, claiming they were misclassified.

Meanwhile, the DOL has made several attempts to clarify the rules across the Obama, Trump and now, Biden, administrations.

The new proposal would require that workers be considered a company's employees, who are entitled to more benefits and legal protections than contractors, when they are "economically dependent" on the company, the International Business Times reported.

The DOL said it will consider workers' opportunity for profit or loss, the permanency of their jobs, and the degree of control a company exercises over a worker, among other factors.

The changes could leave employers responsible for complying with laws relating to FICA, health care, retirement plans and federal regulations that protect employees.

This means employees can cost companies up to 30% more than independent contractors that many industries have come to rely on, according to some studies, the IBT reported.

'Legally earned wages'

Businesses often misclassify vulnerable workers as independent contractors, Secretary of Labor Marty Walsh said in a statement.

"Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages," Walsh said.

The rule, which will take at least several months to finalize, would replace a Trump administration regulation that says workers who own their own businesses or have the ability to work for competing companies, such as a driver who works for Uber and Lyft, can be treated as contractors.

The new proposal adopts a broader definition of who counts as an employee, mirroring legal guidance issued by the Obama administration that was withdrawn by the DOL under the Trump administration.

Earlier this year, the Eastern District of Texas determined in a lawsuit brought by the Financial Services Institute that the department’s Trump-era rule was not correctly removed by the Biden administration in a violation of Administrative Procedures Act. The rule is effective as of its original effective date of March 8, 2021.

The reinstated rule clarified a long-standing “economic reality test” to determine whether a worker is an employee or independent contractor under the Fair Labor Standards Act.

Financial and insurance industry advocates are concerned that individual agents and brokers are subject to a patchwork of state and federal regulations under changes favored by the Democrats.

Reviewing the rule

Organizations such as the Financial Services Institute and the National Association of Insurance and Financial Advisors said they are reviewing the DOL rule today. And doing so with concerns, said Dale Brown, president and CEO of FSI.

"It is imperative to preserve independent financial advisors’ ability to choose to be independent contractors and provide the same level of certainty and clarity the existing rule provides independent advisors," he said in a statement.

"We look forward to constructively engaging with DOL staff to ensure advisors’ independent contractor status is protected. However, the limited time between the DOL’s town halls, when it filed the rule with the Office of Management and Budget, and today's release raises concerns about how much consideration, if any, the Department gave to the feedback it received from American workers and employers.”

NAIFA has longstanding concerns over state and federal proposals that could classify all workers under the “ABC test.”

Under the ABC test, NAIFA said, workers would qualify as independent contractors only if they affirmatively satisfy three conditions: that they are free from the control and direction of the hirer under the contract, they perform work outside the usual course of the hiring entity’s business and the worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.

NAIFA said the test is too restrictive and could result in a large-scale reclassification of many independent contractors as employees under the FLSA.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

© Entire contents copyright 2022 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.