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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.