Advisers Could Retain ‘Independent Contractor’ Status Under Proposed DOL Classifications

The Department of Labor has proposed replacing its 2024 independent contractor rule with a revised version of its 2021 rule, incorporating a few alterations—a move supported by numerous finance professionals.

In 2025, the first of President Donald Trump’s second term, the DOL stopped enforcing the 2024 rule established under former President Joe Biden and announced plans to create a more “predictable analysis” for determining whether a worker is an employee or an independent contractor under the Fair Labor Standards Act.

The new proposal, set to be appear in the Federal Register on Friday, builds on the 2021 version by applying the same economic reality analysis to two additional pieces of legislation—the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Act—as well as to the FLSA.

The 2024 rule intended to extend to gig workers and others deemed “freelancers” employee benefits such as minimum wage, overtime pay and workplace safety standards enforced by the Occupational Safety and Health Administration. However, some independent advisers and broker/dealers argued that the rules would prevent financial professionals from running their own businesses, which would impact the services they could offer.

How We Got Here

Near the end of Trump’s first term in 2021, the department set an “economic reality” test for distinguishing FLSA employees from independent contractors into five factors and, critically, identified two of them as “core” factors: the nature and degree of control over the work, and the worker’s opportunity for profit or loss.

Under the 2021 framework, those two “core” factors were described as the most probative of whether a worker is economically dependent on a business (and therefore an employee) or is in business for themselves (and therefore an independent contractor). If both core factors pointed in the same direction, according to the rule, there was a “substantial likelihood” that the classification was correct.

The 2024 rule, however, applied a six-factor test to determine a worker’s status, each of which held equal weight: a worker’s profit or loss; the financial stake 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 is essential; and a factor regarding the worker’s skill and initiative.

Among the 55,000 public comments to the DOL’s Biden-era rule were calls from advisers to exempt independent financial professionals from the independent contractor rules. California had added a similar exemption when it passed state rules for classifying independent contractors in 2019.

In March 2024, a coalition of trade groups, including the Financial Services Institute, filed a legal complaint that called the DOL rule a “totality-of-the-circumstances test” that is “inappropriately biased toward classifying workers as employees.”

On Thursday, FSI President and CEO Dale Brown said in a statement that he was “hopeful” that the DOL had addressed “serious concerns” about the now-revoked rule.

“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 in a statement. “It is crucial that advisers’ ability to choose the business model that best meets their professional goals and their clients’ needs is preserved.”

Public comments on the proposal will be due 60 days after its publication in the Federal Register.