Officials at the Labor Department have completed regulations that could determine whether or not you're really your own boss.
The DOL Wage and Hour Division published an employee and independent contractor final rule today in the Federal Register. The rule is set to take effect March 11.
Life insurers, agent groups and many individual agents, brokers and advisors wrote to the division to complain about the possibility that agents happily classified as self-employed people today could suddenly lose their independent contractor status.
Division officials maintain that the new regulations are like the old regulations that were in place before January 2021. "This rule is not intended to disrupt the businesses of independent contractors who are, as a matter of economic reality, in business for themselves," officials say in the official introduction to the regulations.
But officials also note that determination of a worker's status will depend on "the totality of the circumstances" and that they cannot say for certain whether an agent's legal relationship with a life insurer, ability or lack of ability to negotiate commission payment rates, level of spending on desks and computers, centrality to the insurer's operations or any other specific factors will make the agent the life insurer's employee.
What it means: Whether you, a financial professional, will be an independent contractor or an employee may depend on additional DOL regulations, future DOL guidance documents and federal court decisions.
The history: The federal Fair Labor Standards Act of 1938 sets the federal rules for matters such as the federal minimum wage and federal overtime pay requirements.
For decades, the Labor Department and federal courts used a five-factor "economic reality" test to decide whether a worker was an employee who was protected by FLSA rules or an independent contractor who was exempt from the rules.
Traditionally, many life insurance agents, brokers and advisors have preferred to operate as independent contractors to benefit from the federal income tax rules for self-employed people and to enjoy the privilege of not having a boss.
But some financial professionals have argued that they would be better off if life insurers classified them as employees. In 2009, for example, three former Northwestern Mutual Life representatives sued in a federal court in California over allegations that the company had deprived them of FLSA protections by classifying them as independent contractors.
In 2019, representatives for Uber drivers and other gig workers persuaded California lawmakers to pass Assembly Bill 5, legislation that established a broader definition of "employee" for California employers.
Federal efforts: The National Association of Insurance Commissioners and other agent and broker groups joined with the American Council of Life Insurers to oppose efforts by members of Congress to set a federal definition for employee that would be similar to the California definition.
During the administration of former President Donald Trump, the Labor Department tried to address the concerns about worker classification by adopting a new, shorter "core factors" test. Those regulations took effect in January 2021.
In October 2022, after Joe Biden became president, the department announced in a notice that it was planning to rescind and replace the new regulations because the new regulations were not fully compatible with the FLSA and conflicted with decades of court decisions based on the economic reality test.
