As Congress works through the issues of sequestration, the classification of workers as independent contractors is an important issue for our industry on Capitol Hill, and legislative efforts to address this have also gained momentum as Congress seeks new sources of tax revenue. The misclassification of workers as independent contractors is an attractive target since it is estimated to result in billions in unpaid payroll taxes.
Previous Congressional sessions considered legislation curbing the use of independent contractors and eliminating Section 530 of the Tax Code, which would have serious unintended consequences for the independent broker-dealer industry by eliminating the “longstanding recognized practice” safe harbor of Section 530 and increasing the financial penalties for employers who misclassify workers as independent contractors without a reasonable basis. It would also force independent financial advisors to no longer own and operate their own business.
Our industry now has a chance at adding language to the Tax Reform bill that would permanently solve this problem for the independent broker-dealer and independent financial advisor community. It is important that Congress hears from members of our industry and understands that independent financial advisors choose to be independent contractors because it gives you the opportunity to operate their own businesses and decide how our industry serves its clients. This translates to freedom to direct clients to the products that are best for them and the ability to tailor advice based on client needs. The independent broker-dealer industry has been growing and any efforts to curb the industry’s legitimate use of independent contractors would be catastrophic to the industry and middle-class investors who may not qualify for individualized attention with large Wall Street firms.