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§ 4304-8. Specific Application of Rules for Determination of Employment Status to Circumstances...

22 CA ADC § 4304-8BARCLAYS OFFICIAL CALIFORNIA CODE OF REGULATIONS

Barclays Official California Code of Regulations Currentness
Title 22. Social Security
Division 1. Employment Development Department [FNA1]
Subdivision 1. Director of Employment Development
Division 2.5. Withholding Tax on Wages
Chapter 1. General Provisions (Refs & Annos)
22 CCR § 4304-8
§ 4304-8. Specific Application of Rules for Determination of Employment Status to Circumstances in the Security Dealer's Industry.
(a) To determine whether services are performed as an employee or independent contractor refer to the common law rules contained in Section 4304-1 of these regulations. Section 4304-1 provides that “to determine whether one performs services for another as an employee, the most important factor is the right of the principal to control the manner and means of accomplishing a desired result.” Section 4304-1 lists factors which are evidence of the existence or absence of the right of control, to be considered when making an employment determination. Section 4304-8 provides standards to be used when applying the common law rules specifically to security dealers and is intended to make clearer those circumstances under which a security dealer is an independent contractor or an employee.
(b) Definitions.
(1) A broker/dealer (B/D) means any individual, corporation, partnership, association, joint stock company, business trust, unincorporated organization or other legal entity designated as a B/D and engaged in the business of effecting transactions in securities for the account of others or his or her own account, but does not include a bank.
(2) A registered representative (RR) is a person associated with a B/D, including assistant officers other than principals, who is engaged in the investment banking or securities business for the B/D including the functions of supervision, sales, solicitation or conduct of business in securities or who is engaged in the training of persons associated with a B/D for any of these functions.
(3) The National Association of Securities Dealers (NASD) is a self-regulatory organization that creates, maintains, and monitors compliance with standardized rules of practice for the industry for the benefit of its brokers and registrants.
(c) The following are examples of the circumstances under which an RR would definitely be an employee and, conversely, definitely an independent contractor. If the circumstances of the status under review do not fit these definite examples then subsection (d), and its determination factors, shall be used.
(1) REGISTERED REPRESENTATIVE AS EMPLOYEE - A RR performing services for a B/D in the following manner would definitely be an employee. The B/D requires the RR to perform services during set hours, on the B/D's premises, and the B/D provides furniture, equipment, supplies, and support staff at no charge to the RR. The RR is paid a salary or draws against commission, with no provision for reimbursement of amounts drawn in excess of commissions earned, and is reimbursed for expenses incurred. The RR is required to attend sales meetings, furnish reports, meet sales quotas, and follow-up on leads which are provided by the B/D. The RR performs services solely for one B/D.
(2) RR AS INDEPENDENT CONTRACTOR - A RR performing services for a B/D in the following manner would definitely be an independent contractor. The RR has a separately established business location accessible to the public or clients. The RR offers a variety of services and investment products in addition to those of the B/D, such as life insurance, real estate, financial planning, or accounting services that are not offered on behalf of the B/D. The RR provides his/her own furniture, equipment, and support staff. The RR is paid strictly by commission, with no draws against commissions, and is not reimbursed for expenses incurred. The RR is not required to attend sales meetings, furnish reports, meet sales quotas, and is not required to follow-up on leads provided by the B/D.
(d) Determination Factors:
To determine whether one performs services for another as an employee, the most important factor is whether or not the principal has the right to control the manner and means of accomplishing a desired result. To the extent that control is exerted only to comply with State, Federal or NASD regulatory requirements, and is the minimum required by regulation, it will be considered an indication of employment, but is insufficient alone to hold an employer-employee relationship. Each of the following factors shall be used to determine if an employment relationship exists.
Not all factors listed in this section (4304-8) are necessary to make a determination that a particular relationship exists. A determination of whether services are being performed as an employee or independent contractor will depend upon a grouping of the factors that are significant in relationship to the services being performed. (See following factors.)
TABLE OF DETERMINATION FACTORS - SECURITY DEALERS
FACTORS
EVIDENCE OF:
WEIGHT
EMPLOYEE
INDEPENDENT CONTRACTOR
(1) Policies or Rules
Set by B/D, extend beyond
Absence of dress code,
The factors of policy setting, procedures,
of Conduct
minimum regulatory
set hours, and required
instructions, supervision, and review
requirements, and are
floor time.
carry great weight. The right of the B/D
followed by the RR.
or B/D's principal to direct and control
the manner and means of how services
are performed, even as to the details of the
work, is the primary test. If that right
exists, whether or not exercised, an
employment relationship exists.
(2) Procedures in
Established by B/D and are
RR establishes his or
To the extent that the B/D or B/D's
Selling Securities
followed by the RR. B/D
her own procedures for
principal, exercises control over the
dictates sales presentations
selling securities,
manner and means of how the services
and supplies leads.
including who and how
are performed through rules, procedures,
to prospect for clients
supervision, review of work, etc., it is
and how to handle an
evidence that the B/D has the right to
account.
control the services, and that this right
to control is complete and authoritative
and carries great weight. Evidence of the
absence a B/D's ability to control the
manner and means of the service
provided by a RR is equally indicative of
an independent contractor relationship.
(3) Supervision on
RR subject to supervision
Details of work not
To the extent that the B/D or B/D's
the Job from
security B/D or his
supervised.
principal, exercises control over the
or her agent.
manner and means of how the services
are performed through rules, procedures,
supervision, review of work, etc., it
is evidence that the B/D has the right
to control the services, and that this
right to control is complete and auth-
oritative and carries great weight. Evidence
of the absence a B/D's ability to control
the manner and means of the service
provided by a RR is equally indicative of
an independent contractor relationship.
(4) Review of Work
B/D, or his or her agent,
No reviews of work
To the extent that the B/D or B/D's
Processes and
reviews the performance of
processes, behavior,
principal, exercises control over the
Products
the RR, such as the amount
or productivity.
manner and means of how the services
of sales, follow up
are performed through rules, procedures,
on leads and customer
supervision, review of work, etc., it is
relations.
evidence that the B/D has the right to
control the services, and that this right
to control is complete and authoritative
and carries great weight. Evidence of the
absence a B/D's ability to control the
manner and means of the service provided
by a RR is equally indicative of an
independent contractor relationship.
(5) Training
Training provided by B/D.
Attendance at training
Training given by B/D that includes
Attendance is required.
is not required. RR is
instructions about how to do the work,
Orientation and/or ongoing
not paid for time at
e.g., dress code, product presentation,
training. RR paid for time
training.
sales pitch, customer relations, is evidence
at training.
that B/D or his or her agent has the right
to control services and carries high
weight. If substantially all of the RRs
attend training it would indicate that the
training is required.
(6) Meetings
RR expected to attend
Attendance at meeting
The act of holding informational meetings,
meetings. RR's paid for
is not mandatory and
by itself, is not a strong indication of
time at meetings. Meeting
non-attendance is
employment. Like training, if the intent
held to discuss securities to
viewed without
and conduct of the meeting conveys rules,
sell, work processes,
negative consequence.
procedures, and instructions relating to
performance, appearance
Time at meetings
the manner and means of how to do the
and conduct.
is not paid for or
work, it is evidence that the RR is not
meetings are not held.
in control of services, and is not self-
employed, and carries great weight.
(7) Reports
Reports are required
No reports required.
Reporting requirements can be viewed as
regarding activities, e.g.,
an extension of the factor “review of
number of contacts made,
work” and would be given medium to
results of lead follow-ups,
great weight depending on the purpose
client reactions, hours
and content of the reports whether verbal
worked, amount of sales,
or written. Reports that are used to monitor
status of sales, and planned
the RR's performance are considered
activities.
principal controls over the manner and
means of the work. “Reports” refer to
reports prepared by the RR, not to reports
prepared by the B/D for internal use.
(8) Work Schedules
Set by B/D or B/D's agent
Set by the RR. No
“When and where” the service is performed
e.g., floor and/or phone
required floor time
are considered aspects of the “details of
coverage.
or phone coverage.
the work.” These factors would be given
medium to great weight. Where the B/D sets
start time, quit time, breaks, etc., it is strong
evidence of the right to control and carries
great weight. Fewer controls would carry
medium weight. If the RR controls these
aspects, and accomplishes an end result for
the B/D by operating his or her own
separate business, it tends to show
independence.
(9) Location of Work
B/D mandates that all, or a
RR chooses where he
“When and where” the service is performed
certain amount, of the RR's
or she will perform the
are considered aspects of the “details of
time will be spent on the
services. If RR chooses
the work.” These factors would be given
B/D's business premises.
to perform services
medium to great weight. Where the B/D
on B/D's premises then
sets start time, quit time, breaks, etc., it is
RR may come and go
strong evidence of the right to control
as he or she pleases.
and carries great weight. Fewer controls
would carry medium weight. If the RR
controls these aspects, and accomplishes
an end result for the B/D by operating
his or her own separate business, it tends to
show independence.
(10) B/D and RR
Contract between the RR
Contract states the clear
Terminology used in written agreement is
Contract
and the B/D gives the B/D
intention of the parties
not conclusive of the relationship, but is
or B/D's agent control over
to enter into an
evidence of the relationship intended so
the manner and means of
independent contractor
long as the actual practice of the parties
the work.
agreement. Contract
is consistent with the contract.
forbids B/D and/or
agent from directing
Written agreements do not necessarily
the RR as to details and
depict the actual relationship. The actual
provides that RR shall
practices of the parties in a relationship
pay his/her own
are more important than the wording of an
expenses. The contract
agreement in making a determination.
provides that RR will
not receive any benefits
An agreement in which the B/D expresses
made available to B/D's
only an interest in an end result and
employees.
abandons the right to control the manner
and means of the work is strong evidence
of independence, so long as the actual
practice of the parties is consistent with
the contract.
(11) Termination
Both the B/D and the RR
Either B/D or RR may
The right to terminate conveys an inherent
have the right to terminate
terminate upon
power of the B/D over the RR.
relationship at will without
reasonable written
The right to terminate at will is strong
prior notice and without
notice without cause
evidence of employment. With this right,
any further contractual
or immediately for
the B/D can demand many things of the
Liability (except for work
cause.
RR, and the RR, fearing fiscal
already performed).
repercussions, would be obliged to
follow such demands. The right to
terminate without cause upon thirty days
notice is evidence of an independent
contractor relationship and carries
medium weight.
(12) Engagement in a
The RR does not operate
The RR operates an
If the RR is in a separate business,
Distinct Business
his/her own business.
independent business
distinct from that of the B/D, and the
Services performed are a
separate from that of
services in question are performed
direct and essential part of
the B/D, has a phone
in the furtherance of that business,
the B/D's business. The RR
directory listing,
great weight would be given toward
does not advertise his/her
advertises under his/her
independence.
services to the general
own trade name, and
public. The RR performs
has a business license
services solely under the
where required. RR
B/D's trade name. The
has investment and
RR only sells securities
expenses in the
through one B/D. The B/D
business which subject
carries liability insurance
him or her to an
covering the RR. RR does
entrepreneurial risk of
not bear risk of loss for B/D.
loss. RR has the ability
B/D owns RR's book of
to sell other types of
clients.
non-security
investments or services
away from the B/D.
(13) Custom in
Wirehouse (Major)
RR's who operate
This factor, by itself, is neutral. This is
Industry and
brokerage firms have
independent financial
because each determination must stand
Location.
traditionally treated
planning firms have
on its own facts regarding the B/D's
their RR's as employees.
traditionally been
right to direct and control. Industry
treated as independent
custom merely gives an inference or
contractors by
direction to the determination.
brokerage firms.
(14) Required Level
In this particular industry, both employees and
Level of skill, by itself, generally does not
of Skill of RR
independent contractors are required to take and pass
weigh heavily. However, a high level of
an extensive test to receive a license from the NASD
technical skill will weigh more heavily
to perform RR services. Therefore, in this industry,
when combined with other factors such
this factor is neutral.
as having a separate and distinct business.
A low level of technical skill weighs heavily
in favor of employment. As the level of
skill declines, the worker has less room
to exercise the discretion necessary for
independence.
(15) Duration
RR's services are on a
Services are on a
This factor, by itself, should be given
of Service
continuous basis for one B/D.
sporadic, per order
light weight. Contractors usually perform
basis.
work on a per job basis for shorter and pre-
designated periods of time. Employment
is usually of open-ended duration.
In this industry independent contractors
are frequently associated with the same
B/D for extended periods of time,
however, services they perform for that
B/D are sporadic.
(16) Whether the
The B/D provides the RR
The RR pays for his or
This factor carries great weight in this
B/D or the RR
with such items as office
her own office,
industry. If the RR has established
Supplies
space, desk, chair(s),
equipment, support
his/her own office, and pays all the
Instrumentalities,
telephone, photo-copies,
services, forms,
expenses connected with that separate
Tools, and Place
fax, support services,
supplies, and
office, there is a strong indication of
of Work
forms, supplies, and
instrumentalities.
independence. On the other hand, if the
instrumentalities.
RR generally works out of the B/D's
office where all necessities are provided
and paid for by the B/D, then there is a
strong indication of an employment
relationship.
(17) Methods of
Payment is based on time
Payment is by
This factor by itself is not controlling.
Payment.
worked or draws against
commission only. The
It is only an indication of the type of
future commissions.
RR pays his/her own
relationship. For example, a RR may
Payment is made at regular
expenses. No benefits
be paid solely by commission, but
intervals and in regular
are provided. RR does
control over the manner and means of
amounts. Payment is by
not receive payment if
the work is sufficient to hold an
salary. Benefits are
the client does not pay.
employer/employee relationship.
provided. Compensation/
Commissions are
commission is set by the
negotiated as to the
principal. Expenses are
percentage to be paid.
reimbursed. RR receives
No draws or unsecured
payment whether or not
advances are made.
the client pays.
(18) Belief of Parties
Both parties believe the
All parties agree that
This factor, by itself, is not controlling. The
relationship is an
relationship is one of
belief of parties only infers the relationship
employment relationship.
independence.
intended.
Either B/D or RR believe
the relationship is an
employment relationship.
(19) Part of Regular
Services are an integral or
The RR's services are
This factor is given medium to great weight.
Business of
normal part of the B/D's
only supportive of the
The presumption is that if the service is an
B/D
regular business activities.
business activities and
integral (regular/normal/central) part of the
Activities are central to
are not an integral part
B/D's business, the B/D, by business necessity,
selling the securities sold
of the agency's or
needs to maintain control over the service.
by the B/D.
principal's business
activities.
Note: Authority cited: Sections 305 and 306, Unemployment Insurance Code. Reference: Sections 621 and 13004, Unemployment Insurance Code.
HISTORY
1. New section filed 3-29-96; operative 4-28-96 (Register 96, No. 13).
2. Editorial correction of section and Table (Register 96, No. 34).
This database is current through 11/12/21 Register 2021, No. 46
22 CCR § 4304-8, 22 CA ADC § 4304-8
End of Document