Employee vs. Independent Contractor

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May 21, 2009 6:02 pm

What is the difference between operating in a bank setting as an IC vs and Employee?

 
Right now I am a W2 employee with a draw and full benefits.  Bank moving reps to IC, full commission, no benefits.
 
What are the restrictions on the bank working with IC vs employees and what expenses will I now have to pay?
 
Will I have to pay "rent", etc?  
 
So what's the benefit over just having an office down the street on my own and truly being independent?
May 22, 2009 12:48 am
newrookie:

What is the difference between operating in a bank setting as an IC vs and Employee?

 
Right now I am a W2 employee with a draw and full benefits.  Bank moving reps to IC, full commission, no benefits.
 
What are the restrictions on the bank working with IC vs employees and what expenses will I now have to pay?
 
Will I have to pay "rent", etc?  
 
So what's the benefit over just having an office down the street on my own and truly being independent?



That is dependent on the contract.  You are probably going to have to pay a lot more of your expenses.  They may charge for office, OSJ fees, tech fees. etc. You will be able to deduct these fees, so it may be a wash.  The big thing is benefits.  You are going to have to find your own health insurance, dental, life, etc.

Good Luck
ash
www.FAfreedom.com - The Breakaway Experts
609-945-7100 x 101

May 22, 2009 7:34 am

Right now I don't pay for any expenses.  But I also have no control over how I prospect - when, how, how often, what.


I would guess, then that the bank B/D platform is a hybrid - lower payout than a pure indie model where I have my own office, but higher than I am getting now?
 
Yes, I know about the benefits - AND the taxes - being paid 1099 and the FICA, etc.
 
Hopefully in return it will also offer a little more autonomy.
 
May 22, 2009 9:45 pm

In the real world, there is a huge difference between being an employee and an independent contractor.   In the registered rep world, the difference is much smaller. 


This is primarily because as a registered rep, whether an employee or an IC, we are still registered reps.  As such, we don't have the freedom that the rest of the world has. 


You want to go take a dump?  You still can't do it without your B/D permission regardless of your employee status.


My point is that the only meaningful difference is how you get compensated and how things get taxed.

May 23, 2009 8:05 am

I am well aware of the restrictions placed by the B/D whether you are an employee of the B/D or an IC  of the B/D.

 
Other than the taxes, and benefit issues, what I am curious about is if the dynamic between the "employer" - in this case the bank - changes when a rep's status changes from "employee" of the bank (dual employee - bank and B/D) to IC with the B/D and no longer technically an employee of the bank, but still situated in the bank.
 
I would imagine that the IC status allows a little more flexibility as to what the rep can/cannot do on their own, versus the activities being controlled entirely by the bank - hours worked, prospecting, training, etc.
 
It seems an odd fit for me, and I see some potential landmines.
May 23, 2009 10:34 am

"I would imagine that the IC status allows a little more flexibility as to what the rep can/cannot do on their own, versus the activities being controlled entirely by the bank - hours worked, prospecting, training, etc."



 
That's basically my point.  If you were, for example, an IC doing consulting work, you would have complete control of all of that stuff.   As an IC for a broker/dealer, they still can maintain complete control over you. 
 
Part of what makes it different is the fact that you can only have one B/D.  If the bank wants you to do things a certain way, you can't say "no" and just place your business elsewhere.  If you were an IC doing consulting work and one of your clients wants you to do things a certain way, and you don't want to, you just work with other clients. 
 
In short, your pay only comes from one source.  This gives them almost complete control over you.  With any other IC, your income can come from many sources.
May 28, 2009 7:58 am

Yes, the B/D can tell you what to do from a compliance standpoint, but my understanding is that the "employer" who is now no longer an employer, but contracts with the B/D can't tell you how to run your practice - where to buy your supplies, what prospecting letters you can send, if you can do seminars, when you can do them, what topics they are on, etc. 

 
That level of control, in my limited understanding is specific to an employer/employee relationship, and if the employer (the bank) wants that kind of control, then they need to pony up and pay benefits and employment taxes to make the rep an employee.  Can't have it both ways.
 
I am curious, if you are an IC with a B/D who contracts with a bank if you are able to have your own practice (outside of bank business) on the side.  Yes, you can only have one B/D, but why does the bank have to be the only person you get business from, especially if the business is not forthcoming?
 
Could you maintain an outside office and go to the bank by appt only or only on certain days?  That to me is what defines the "independent" relationship.  That you are not sitting in a bank 9-5 doing their bidding, yet paying for everything yourself with no control over your business.
May 28, 2009 8:45 am

The problem, newrookie, is that everything falls under compliance.  Therefore, even if you aren't an employee, the B/D still has a very large say in how you run your practice.   They won't tell you where to buy your supplies, but they do have to approve your letters, seminars, etc and can tell you where you can or can't do your business.  They have the same reponsibility to supervise you whether you are an employee or an IC. 

May 29, 2009 6:18 am

Not talking about the broker-dealer.

 
Talking about what control the old employer (bank in this case) who has now made the rep an Independent Contractor has in an Independent Contractor relationship.
 
Again, I am fully aware of what control the broker/dealer has over the rep.
 
There are 3 parties involved here.  The rep, the B/D and the bank. 
 
I understand the relationship between the B/D and rep.  I do not (fully) understand the relationship (specifically what control over the rep there can be) the bank has over the rep.
May 29, 2009 7:14 am

You seem to be focusing on the legal relationship between the former employer and employee. This gets squarely into tax law, because the potential cost benefit to the employer of considering someone as an independent contractor rather than an employee. The IRS is very clear that the issue is NOT simply what the employer thinks or wants to do, they must satisfy a multi-part test to determine if the person/people in question are actually ICs or employees. Otherwise employers could avoid payroll taxes and benefit costs of employees, just declare everyone ICs, and just carry on with business as usual. They can't do that.



Like most tax codes issues, this gets messy fast, so you'll have to do some googling and reading yourself, but briefly the IRS defines "independent contractor" by stating that the person for whom the services are performed (the employer) has the right to control or direct only the result of the work but NOT the means and methods of accomplishing the result. Who controls how and when the work will be done? Who provides the place and equipment to do the job? Is the individual free to also contract out his services to another party?



These are among the issues involved, above and beyond the b/d control issues. Full details are beyond the scope of this forum, so start researching.

Or you could take BiLo's approach instead, which is to sit back and childishly demand that others do your work for you because you are lazy.  That has certainly worked wonders for Bi, who displays no more understanding today of the issues he raised questions about than he did the day he posted them.  

May 30, 2009 9:37 am
newrookie:

Yes, the B/D can tell you what to do from a compliance standpoint, but my understanding is that the "employer" who is now no longer an employer, but contracts with the B/D can't tell you how to run your practice - where to buy your supplies, what prospecting letters you can send, if you can do seminars, when you can do them, what topics they are on, etc. 

 
That level of control, in my limited understanding is specific to an employer/employee relationship, and if the employer (the bank) wants that kind of control, then they need to pony up and pay benefits and employment taxes to make the rep an employee.  Can't have it both ways.
 
I am curious, if you are an IC with a B/D who contracts with a bank if you are able to have your own practice (outside of bank business) on the side.  Yes, you can only have one B/D, but why does the bank have to be the only person you get business from, especially if the business is not forthcoming?
 
Could you maintain an outside office and go to the bank by appt only or only on certain days?  That to me is what defines the "independent" relationship.  That you are not sitting in a bank 9-5 doing their bidding, yet paying for everything yourself with no control over your business.
 
I'm at a local indy OSJ now, prior to being here large bank brokerage (but not actually in the bank) and an insurance company that masqueraded around like a financial planning firm.  At the first place, I was a complete IC, had to pay my own office expenses, no benefits and on top of that, horrible payouts.  They preached to us that b/c we were paying our own expenses and an IC, we were "business owners".  There were 3 parties involved: the B/D, my local OSJ and me.  The B/D had complete control over everything and I had to get a "mother may I" for everything including slogan on the email signature block which they still wouldn't approve.  Eventually b/c so many people wanted their email slogan, they came up with 3 approved slogans for the entire field force that was compliance approved; how freaking unique and very business owner minded. 
 
The local OSJ had complete control over us as well.  If there was some mandatory training that was going on somewhere in the country, we HAD to go and pay out of our pocket and there was no debate on whether or not we can go.  It was ridiculous.  For us, if it was mandatory, then why aren't you paying for it but it came back down to the IC and you're a "business owner".  Technically, even though it was our own computer, we had to get approval before we downloaded anything on it, lol. 
 
The reason for my blab is that becoming IC in this industry, like someone else said, almost always benefits the firm and not the rep.  Where I was at, we were IC for whatever benefitted the firm but were "employees" with how we were treated and payouts.  The only benefit with the IC is you get to write off a lot more than a W2 employee.  Where I am at now I'm a Statutory Employee where the firm still pays 1/2 the SS tax like a regular W2 and also get subsidized benefits, like health and disability. 
May 30, 2009 9:42 am

Correction, I'm only a Statutory employee for business that I place through the insurance side of the B/D; if I use outside vendors and products, I get a 1099 and have the full 15.3 coming out of my pocket.  God I hate the Social Security system!