The U.S. Department of Labor (DOL) today announced a final rule that would outline whether a worker is classified as an employee or an independent contractor, raising questions among some financial services organizations on the status of independent financial advisors.
The final rule on the Fair Labor Standards Act seeks to avoid employee misclassification that could threaten labor rights and economic security, and instead offer “proper classification,” the Department of Labor noted in a release following the announcement. A past study by the Economic Policy Institute (EPI) shows that the misclassification of an employee to an independent contractor could have serious implications to earnings, benefits, and labor protections, including those offered by the National Labor Relations Act.
“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections,” said Acting Secretary of Labor Julie Su. “This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned.”
The rule overrides a previous 2021 independent contractor rule, which found that under the Fair Labor Standards Act, independent contractors are not employees and were not subject to employee benefits.
Now, the new rule addresses six factors that determine whether a worker is deemed an employee or freelancer, including:
- Any opportunity for profit or loss a worker might have
- The financial stake and nature of any resources a worker has invested in the work
- The degree of permanence of the work relationship
- The degree of control an employer has over the person’s work
- Whether the work the person does is essential to the employer’s business
- And a factor regarding the worker’s skill and initiative.
Criticism from FSI
The DOL’s latest iteration has received immediate pushback from financial services organizations who argue that many financial advisors prefer to keep their independent status. The Financial Services Institute (FSI), a Washington, D.C.-based trade association that represents independent financial advisors, released a statement Tuesday voicing its skepticism on the rule.
“We fear the DOL’s final rule will undermine our financial advisor members’ independent contractor status, despite thousands of comment letters, multiple hearings and many meetings in which stakeholders, including our members, expressed their desire to remain independent,” said FSI President & CEO Dale Brown in a statement.
“Independent financial advisors are entrepreneurs who have built a strong presence in their communities, own their own businesses, pay business taxes and hire their own staff. If they are forced to be employees, this could adversely harm Main Street Americans’ access to their local trusted financial advisor,” he continued. “The independent contractor status is vital to our members, and FSI is ready to leverage all our advocacy tools to ensure it remains protected.”
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Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
