End of independent contractor?
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There is a piece of proposed legislation that could change the way independent b/ds classify affiliated reps for tax purposes. Both the Obama administration, labor unions and House Representative Rob Andrews of New Jersey have supported legislation which could be devastating to IBDs. The bill failed to move out of committee during the last Congress, but Rep. Andrews confirmed he plans to reintroduce legislation this year: the Employee Misclassification Prevention Act of 2008, introduced by Rep. Robert Andrews and supported by Congress members, Lynn Woolsey, George Miller, Mike Michaud—and almost all the Democratic members of the Committee on Education and Labor. While the legislation is aimed at other industries (Fed Ex drivers who some say should not be classified as indie contractors), the securities space could also be adversely affected.
FSI says “The bill would have had serious consequences for independent broker-dealers by taking away an important feature in Section 530 of the Revenue Act of 1978 (as amended), the safe harbor provision in the Federal Income Tax Code.”
Essentially, the bill could potentially eliminate the safe harbor provision which allows b/ds to exercise legally-required supervisory responsibilities over associated RRs without giving up the right to classify them as independent contractors. In addition to opening IBDs up to IRS scrutiny (which could result in back taxes, penalties, and other tax-related costs), b/ds might have to revamp their business model if independent contractor reps had to then be classified as employees.
There’s certainly an issue here. The B/D retains a lot of power over people who are not their employees.