On February 26, 2026, the U.S. Department of Labor released its newly proposed independent contractor rule to determine whether workers are employees or independent contractors under the Fair Labor Standards Act.

The Department of Labor’s release of a new rule is set to replace the existing 2024 federal rule on independent contractor classification. The 2024 Rule fails to provide an analysis for distinguishing between independent contractors and employees under the FLSA that is sufficiently clear and leads to predictable outcomes. The 2024 Rule’s description of several economic reality factors could be viewed as setting a higher bar to find independent contractor status than required under the law. 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.

The analysis hinges on two main factors: 1) The nature and degree of control over the work, and 2) The worker's opportunity for profit or loss based on initiative or investment. The proposed rule continues to use the "economic reality" test, focusing on whether a worker is in business for themselves or is economically dependent on the hiring entity.

Many financial advisors operate locally as small business owners, employing others on their staff, and serving the members of their communities. 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.

Prospects: NAIFA is currently reviewing the proposed rule to determine the full impact on independent contractors and will remain diligent to ensure that NAIFA members are best positioned to maintain their independent business operations and to best serve their clients.

NAIFA has previously provided extensive comments and testimony to the DOL on the topic of preserving independent contractors’ rights and we now look forward to working with the department as it works to improve policies that support the independence of NAIFA members and the ability of consumers to receive professional financial guidance.

NAIFA Staff Contact: Mike Hedge – Senior Director – Government Relations, at mhedge@naifa.org