DOL proposes new independent contractor rule; industry is ‘encouraged’

The Department of Labor on Thursday unveiled a proposed rule aimed at clarifying how businesses and workers determine whether a job qualifies someone as an independent contractor or an employee under federal labor laws.

The rule, announced by the department’s Wage and Hour Division, would rescind a 2024 rule finalized under the Biden administration and replace it with an updated framework that echoes earlier standards used before 2024.

Under the proposal, a worker’s status would be evaluated using an “economic reality” test focused on factors such as how much control a business has over the work and a contractor’s opportunity for profit or loss.

The test is intended to help distinguish workers who are truly independent from those economically dependent on an employer — and therefore entitled to protections such as minimum wage and overtime under the Fair Labor Standards Act.

The National Association of Insurance and Financial Advisors is "encouraged" by the rule after years of back and forth, said CEO Kevin Mayeux.

"Many financial advisors operate locally as small business owners, employing others on their staff, and serving the members of their communities," Mayeux said in a statement. "Reclassifying them as employees rather than independent contractors would have threatened their ability to best serve their clients and to ensure that their small businesses can operate efficiently."

NAIFA lobbied for many years for an independent contractor rule that would allow its members to operate as they have for years. Mayeux criticized the 2024 rule as harmful for members.

"Among other harms, an analysis which is ambiguous or perceived as too restrictive of independent contracting can deter businesses from engaging with bona fide independent contractors or induce them to unnecessarily classify such individuals as employees," he said.

Applies to other laws

The proposed rule also would apply the same criteria to other federal laws that rely on the FLSA’s definition of “employ,” including the Family and Medical Leave Act and protections for agricultural workers.

The change would help preserve the “entrepreneurial spirit” of independent workers while simplifying compliance for employers, said Labor Secretary Lori Chavez-DeRemer, particularly in sectors that rely heavily on contractor labor such as gig platforms, trucking and healthcare.

Dale Brown, president and CEO of the Financial Services Institute, echoed the need to preserve the independent contractor option for financial services.

"Our members have chosen the independent contractor model -- many making the switch from an employee model -- so that they can build their own businesses and better serve their clients," Brown said. "It is crucial that advisors’ ability to choose the business model that best meets their professional goals and their clients’ needs is preserved."

Other business groups have welcomed the move, arguing that the 2024 rule created confusion and litigation risk for employers. The American Trucking Associations praised the proposal as a step toward protecting the livelihoods of independent truckers.

Opponents of rolling back the stricter 2024 standard say doing so could weaken worker protections and make it easier for employers to classify workers as contractors instead of employees, potentially reducing wage and benefit safeguards.

The public has 60 days to comment on the proposed rule, with the comment period scheduled to close April 28.

Analysts say the outcome could have wide-ranging implications for millions of workers, especially in the gig economy, and signal a significant shift in federal labor policy.