Labor Department rule would hurt financial services workers, consumers alike

OPINION:

Independent contractors are vital to innumerable U.S. industries. The financial services sector in particular could become a deliberate casualty of a Department of Labor rule that seeks to reclassify these independent workers.

In late 2022, President Biden proposed a restriction of workers’ ability to classify themselves as independent contractors and force them to be W-2 employees instead. The executive branch proposal came only after repeated failures by Democrats to pass similar worker reclassifications through Congress as part of a pro-union package known as the Protecting the Right to Organize Act.

The rule would constrict the definition of an independent contractor based on a series of vague factors constructed specifically to end independent work for millions of Americans, placing them into the grasp of union bosses. Americans for Tax Reform submitted comments to the Labor Department last year opposing this flagrant attack on worker freedom.

Sixty million Americans performed freelance work last year, representing 39% of the workforce and contributing $1.35 trillion to the economy. Eight in 10 of these workers say they prefer their current work arrangement, while fewer than 1 in 10 say they would prefer to be traditional employees.

Freelancers consistently report greater flexibility, better work-life balance, and overall job satisfaction than non-freelancers — benefits that are now in jeopardy due to the proposed rule.

The focus of conversations about independent contracting has often been on jobs such as trucking and app-based driving, in large part due to deleterious effects faced by those industries in California after the state attempted to enforce similarly restrictive reclassification rules under a law known as AB 5. Consumers should also be mindful of the crucial role that independent contractors play in the financial services sector.

More than half a million independent contractors work in the U.S. finance and insurance industry, including nearly 160,000 independent financial advisers. Like independent contractors in other industries, a large number of those in the financial services industry cite scheduling flexibility and the ability to be one’s own boss as their main reason for choosing to work as an independent contractor.

These workers also report economic benefits from their right to work independently. Independent contractors who work in financial services are more than twice as likely as those in other industries to cite higher compensation as their main reason for choosing independent classification status.

At the same time, financial services companies that work with independent contractors see economic benefits of their own, often enjoying lower costs than they would face with an all-employee workforce and a compensation framework that is more closely tied to worker performance.

These benefits pass through to customers, who receive higher-quality services at lower prices due to the independent contracting model. As a result, lower-income Americans can have greater access to financial advice and other important financial services to help secure their economic future.

As in other industries, a new Department of Labor rule that seeks to expand the number of financial services workers who are forced to become employees would threaten these widespread benefits. Firms would see their costs rise, customers would lose access to crucial services, and workers would lose both compensation and flexibility.

Worse yet, according to a study commissioned by Americans for Tax Reform and the Tholos Foundation, a vast number of independent contractors who are forced to reclassify under the rule would be further burdened by higher taxes.

Workers today are in a precarious position. Mr. Biden’s nominee for secretary of labor, Julie Su, was the chief architect of California’s disastrous reclassification effort that inspired the current Labor Department proposal. If Ms. Su is confirmed as secretary and allowed to enforce her agenda at the department, she will pose a serious threat to the livelihoods of independent contractors in the financial services industry and the millions of Americans they serve.

• Rowan Saydlowski is a federal affairs coordinator with Americans for Tax Reform.