The U.S. Department of Labor has proposed a new rule to clarify the employment status of independent contractors. The proposal would rescind a 2024 final rule that was approved under the Biden administration, which would have affected some financial advisors, particularly those working in affiliation with independent broker/dealers.

The latest proposal would replace the Biden-era rule with an analysis for employee classification, similar to the one adopted by the Trump administration in 2021. After President Joe Biden took office, the DOL delayed its effective date and withdrew the rule, arguing that it was inconsistent with the Fair Labor Standards Act and would create confusion among workers and employees. 

The Financial Services Institute, the advocacy organization for independent advisors and broker/dealers, was supportive of the previous Trump rule, which would have solidified the independent contractor status for independent b/d advisors under the FLSA.

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“The tens of millions of Americans who work as independent contractors are helping drive the Golden Age of the American economy,” Secretary of Labor Lori Chavez-DeRemer said in a statement. “The department’s proposed rule seeks to protect these workers’ entrepreneurial spirit and simplify compliance for American job creators navigating a modern workplace, all while maintaining robust protections for employees under the Fair Labor Standards Act.” 

Dale Brown, president and CEO of FSI, said the organization was still reviewing the new rule. 

“We are hopeful the department has meaningfully addressed the serious concerns raised about the prior rule,” Brown said in a statement. “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. It is crucial that advisors’ ability to choose the business model that best meets their professional goals and their clients’ needs is preserved.”

The new rule would use an “economic reality” test to classify employees versus independent contractors under the FLSA. The rule would assess the person’s “nature and degree of control over the work,” as well as their “opportunity for profit or loss based on initiative and/or investment.”

The rule would also consider other factors in determining status, such as the skill required for the work, the permanence of the working relationship, and whether the work is part of an integrated unit of production.  

The comment period for the proposed rule will remain open until April 28, according to the DOL.

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