The U.S. Department of Labor (DOL) on May 1 announced that it would stop enforcing the independent contractor rule previously imposed by former President Joe Biden’s administration.
The DOL’s Wage and Hour Division issued a field assistance bulletin last week with updated guidance on interpreting employee and independent contractor status under the Fair Labor Standards Act (FLSA). According to the bulletin, agency investigators are “directed not to apply the 2024 rule’s analysis in current enforcement matters.”
Instead, the division recommends investigators use principles outlined in Fact Sheet #13 and the reinstated Opinion Letter FLSA2019-6. According to the fact sheet, independent contractors, otherwise known as gig workers or freelancers, are not covered by the FLSA and do not receive protections under the legislation.
The fact sheet states that workers must undergo an “economic reality test” to prove whether they classify as an employee or independent contractor and whether they qualify for protections under the FLSA. The test is weighed on whether a worker is economically dependent on an employer for work.
Specifically, the test looks at six factors to gauge whether a worker is economically dependent on an employer, including opportunities for profit or loss depending on managerial skill; investments by the worker and the employer; permanence of the work relationship; nature and degree of control; whether the work performed is integral to the employer’s business; and skill and initiative.
“If the economic realities show that the worker is in the business for themself, then the worker is an independent contractor,” the fact sheet states. “Employment under the FLSA is not determined by technical concepts or common law standards of control; it is broader than the common law standard often applied to determine employment status under other Federal laws.”
The DOL says the FAB supersedes any prior or conflicting guidance.
The previous rule imposed by the Biden Administration received swift pushback from financial advisors when it was first announced, who argued they preferred to keep their independent status. A past study from the Financial Services Institute (FSI), a Washington, D.C.-based advisory industry group, found that 19% of advisors would rather retire than to be classified as an employee.
The rule has since been met with legal challenges by a coalition of trade groups, including FSI, who contend that the rule violates the Administrative Procedures Act and does not factor in costs to employers and workers.
The DOL has said it is considering rescinding the rule imposed by the prior administration. “The Department has taken the position in those lawsuits that it is reconsidering the 2024 Rule, including whether to rescind the regulation,” the bulletin stated. “Specifically, [the Wage and Hour Division] is currently reviewing and developing the appropriate standard for determining FLSA employee versus independent contractor status.”
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Nearly 20% of Advisors Prefer to Retire than be Labeled as Employees Under Proposed DOL Rule
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.