NAIFA has written a letter of support for the Department of Labor’s (DOL’s) new proposed independent contractor rule. The letter notes that most NAIFA members are independent contractors, and specifically supports the economic reality test that DOL is proposing.
NAIFA also recommends a further modification to the proposal to make clear that ”under the secondary factors (in the restored five-part test), existing long-term and critical independent contractor relationships – which are common in the insurance and financial advisor services industry – are not undermined. In particular, with respect to the permanence and integrated unit factors articulated under the proposed five-part test, NAIFA supported the Department’s 2001 interpretation in the preamble that “workers can often have long-term working relationships and still qualify under the FLSA as independent contractors” and that individuals that offer “discrete, segregable services” to individual clients or customers would indicate classification as an independent contractor.”
The NAIFA letter explains that the majority of NAIFA’s members – insurance producers, broker dealer representatives, and/or independent registered investment advisors – are independent contractors who provide vital financial benefits and insurance services to consumers across the country. “For our members to continue to serve their communities, however, they must be able to maintain their ongoing status as independent contractors with certainty. As such, NAIFA and its members strongly support the Department’s efforts to once again codify the “economic reality” test and provide clarity, guidance, and consistency in the classification of workers, while ensuring that such a test is not unduly restrictive or disruptive to the economy.
“Specifically, NAIFA agrees that the two “core factors” proposed by the Department – the nature and degree of control over their own work and the opportunity for profit or loss – should be central to the classification analysis. In considering NAIFA’s membership, an examination of these two factors indicates that existing and ongoing independent contractor relationships would not be in danger of reclassification.
“For instance, insurance producers – who may opt to operate their own businesses while engaging in substantial contractual relationships with one or more insurance companies – will often work with insurance companies to jointly set forth the terms of their relationship to ensure that the producer can maintain their independence, sell a diverse array of products on behalf of multiple insurance companies, and retain the right to direct or control their work and opportunity for profit or loss. Similarly, NAIFA members who are jointly licensed as insurance producers and broker-dealer representatives and/or independent registered investment advisors may own and operate their own small business, maintain flexibility over their business model and their product offerings, and exert independent control over their business operations.
“NAIFA agrees with DOL’s analysis that a worker’s exposure to economic gains and losses is more demonstrative of the worker’s dependence on another entity to render services than the amount of skill required for the work and the degree of permanence of the work relationship between the worker and another entity. A worker’s direct exposure to financial gains and losses that arise from the worker’s exercise of initiative and that are not mediated by the performance of another entity is manifestly more indicative of that worker’s independence from another entity in the worker’s provision of services than the relative specialization or duration of the services. NAIFA welcomes DOL’s proposal to simplify the analysis and minimize contemplation of ancillary variables by describing the relative importance of the factors.
“These models – which are predicated on such independent contractor arrangements – leave NAIFA members in control of their own client base and profit streams; the vendors with which they partner; and their own staff, resources, facilities, and equipment. As such, under an analysis of the proposed rule’s “core factors,” NAIFA members engaging in these essential relationships would presumably continue to qualify as independent contractors.”
NAIFA supports the 2001 interpretation of the independent contractor rule that “workers can often have long-term working relationships and still qualify under the Fair Labor Standards Act (FLSA) as independent contractors” and that individuals that offer “discrete, segregable services” to individual clients or customers would indicate classification as an independent contractor.”
Prospects: Most Washington insiders see finalization of this rule as probable well before year-end.
NAIFA Staff Contact: Mike Hedge – Senior Director – Government Relations, at mhedge@naifa.org