Senators Introduce Legislation to Standardize Independent Contractor Classification
Three U.S. senators have introduced a package of four bills aimed at modifying federal labor law and creating a national standard for independent contractor classification.
The Modern Worker Empowerment Act, introduced by Bill Cassidy (R-La.), Tim Scott (R-S.C.), and Rand Paul (R-Ky.), would make it easier for employers to classify workers as independent contractors and overrule any state standards that have been considered. Scott first introduced the legislation in 2019, then again in 2021 and 2023.
Legislative proposals addressing the classification of independent contractors are largely supported by financial advisers who operate through broker-dealers. Supporters say it allows for advisers to manage their own firms and schedules and serve their clients with a greater degree of autonomy. The legislation would also offer a potential solution to the long-standing challenge where varying state and federal interpretations of independent contractor status have created uncertainty within the financial services industry.
Advocacy groups representing independent advisers and broker-dealers, such as the Financial Services Institute, have long argued that the lack of a unified definition for independent contractors exposes them to risks of reclassification as employees, which could trigger substantial changes to their business operations, tax obligations, and regulatory compliance.
It further claims that such reclassifications could limit access to affordable financial advice for “Main Street” Americans, as advisers might be forced to alter their service models or retire.
The legislative package comes just weeks after the U.S. Department of Labor announced it would no longer enforce its own March 2024 rule that redefined independent contractor status using a six-factor “economic realities” test.
The six factors that guided the analysis of a worker’s relationship with an employer included: any opportunity for profit or loss a worker might have; the financial stake and nature of any resources 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 or whether the work the person does is essential to the employer’s business; and a factor regarding the worker’s skill and initiative.
The other three companion bills that were introduced this week are:
- Unlocking Benefits for Independent Workers Act to establish a federal safe harbor allowing businesses to offer benefits such as retirement contributions and health coverage to independent contractors without it being used as evidence of an employment relationship;
- Association Health Plans Act (S.1847) to amend the Employee Retirement Income Security Act to allow self-employed workers, sole proprietors, and small businesses to form associations to access group health insurance; and
- Independent Retirement Fairness Act to expand access to pooled employer plans and solo retirement vehicles for independent workers currently excluded from traditional employer-sponsored retirement plans.
Critics have said that previous versions of Scott’s bill ultimately reduce workers’ rights and exclude them from significant labor protections.
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