The U.S. Department of Labor’s proposal to rescind current guidance determining independent contractor status under the Fair Labor Standards Act will significantly benefit independent insurance agents and brokers and the consumers who rely on them for financial and risk-protection products and services. The current guidance is far too likely to misclassify independent contractors in the insurance space as employees. NAIFA supports DOL’s proposal to replace the current guidance “with guidance that is substantially similar to the guidance DOL adopted in 2021,” NAIFA President Christopher Gandy wrote in a letter to Andrew Rogers, administrator of the DOL’s Wage and Hour Division.

That earlier guidance, commonly known as the “Economic Realities Test,” determines a worker’s status based on the degree of their control over their work, their opportunities for profit or loss, the amount of skill required to perform the work, the permanence of the relationship between the worker and employer, and whether the work is part of an integrated unit of production. The current guidance uses a very broad definition of “economic dependence” to classify many independent business owners as employees. Under the Economic Realities Test, independent insurance and financial professionals are much more likely to be properly classified as contractors.

Misclassification can severely inhibit the success of professionals and their ability to serve the best interests of their clients. 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. They are skilled practitioners who are licensed, highly trained, and tightly regulated. Many of them are entrepreneurs and small business owners who maintain their own offices, purchase their own business insurance, and hire their own employees. Their independent-contractor status allows them to focus on the needs of their clients and employees, have flexibility in their business models, and maintain control over the types of financial products they recommend and sell. A survey of NAIFA members found that more than 95% of those who were independent contractors under the 2021 rule desired to maintain that status.

“Independent insurance producers and independent financial advisors are vital to ensuring that millions of Americans have access to important financial benefits,” Gandy wrote to Administrator Rogers. “These professionals are deeply rooted in their communities and are best positioned to understand the needs of consumers. Ensuring their proper classification as independent contractors is to ensure the availability of products they can provide their clients.”