§ 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 5/13/22 Register 2022, No. 19
22 CCR § 4304-8, 22 CA ADC § 4304-8
End of Document |