Advisors May Take the Next Exit if NJ Passes New Contractor Rule

It’s only fitting that the state that gave us Bruce Springsteen would be pressing for new protections for workers.

The Garden State’s labor department is considering changes to the criteria that determine whether workers are categorized as independent contractors or as employees. The state regulator’s proposal goes further than the current standards and could require many workers who are currently considered contractors to be made full-time employees. And that, trade groups say, would make business hard for insurance companies and broker-dealers. On Tuesday, the Financial Services Institute published results of a survey of 367 New Jersey financial advisors, finding that 65% said they would consider moving their businesses out of the state if the proposed changes are enacted. 

“Their independent contractor status affords them the freedom and flexibility to provide affordable, high-quality financial advice to their clients,” FSI CEO Dale Brown said in a statement. “This proposed rule threatens not only the businesses advisors have built, but also New Jersey families’ access to the advice they rely on to navigate life transitions and achieve financial security.”

Easy as 1-W2-3

New Jersey has a three-part test to determine workers’ classifications, which as in other states, is called an ABC test. Generally, that includes whether a worker is under control or direction, provides services outside the usual course of business for a company (and outside of its locations) and works in an independent trade or occupation. One change to the test could make workers’ houses be considered extensions of companies’ business locations, thus disqualifying such workers from being independent contractors, according to comments from The National Association of Insurance and Financial Advisors (NAIFA).

There have been other efforts to categorize more contractors as employees, both nationally and at state levels, changes that could make workers eligible for benefits such as health insurance and paid family leave. The Biden administration’s Department of Labor finalized a more comprehensive rule in 2024 to make many gig workers full-time employees, though the Trump administration clarified that it is not enforcing some of the provisions. And a set of new standards passed by California’s legislature in 2019 has various carve-outs, such as for insurance brokers, allowing them to be excluded.

Some of the other findings that FSI touted from its survey include:

• Ninety-four percent of independent advisors said they are very satisfied with being considered independent contractors.
• Three quarters said they value owning their own businesses, and 62% said working as contractors helped them better serve clients.
• Four percent said they would retire if the proposed changes went into effect, while 8% said they would consider becoming employees.

Legislate It. Several Republican state lawmakers indicated they would introduce a bill to invalidate the state DOL’s proposal. “Stripping away this independence would burden both gig workers as well as businesses who prefer to work with independent contractors in a more copacetic arrangement,” Assemblyman Gerry Scharfenberger said in a statement.