Rule 701 (platform worker) proposing release-PRA Supporting Statement.Final

SUPPORTING STATEMENT FOR THE PAPERWORK REDUCTION ACT
SUBMISSION FOR PROPOSED TEMPORARY RULE AMENDMENTS TO INCLUDE
CERTAIN “PLATFORM WORKERS” IN COMPENSATORY OFFERINGS UNDER
RULE 701 AND FORM S-8
This supporting statement is part of a submission under the Paperwork Reduction Act of
1995, 44 U.S.C. §3501, et seq.
A. JUSTIFICATION
1. CIRCUMSTANCES MAKING THE COLLECTION OF INFORMATION
NECESSARY
In Securities Act Release No. 33-10892 (the “Proposing Release”), the Commission
proposed amendments that, on a temporary basis, would permit an issuer to offer and sell
securities in compensatory transactions to workers who provide services available through the
issuer’s internet-based marketplace platform, or through another widespread, technology-based
marketplace platform or system (“platform workers”) under Securities Act Rule 701 or Form S-8
as long as certain conditions are met. The proposed amendments contain “collection of
information” requirements within the meaning of the Paperwork Reduction Act of 1995. The
titles of the collections of information are:


“Rule 701” (OMB Control No. 3235-0522); and



“Form S-8” (OMB Control No. 3235-0066).

2. PURPOSE AND USE OF THE INFORMATION COLLECTION
Rule 701 provides an exemption from the registration requirements of Securities Act
Section 5 for offers and sales of securities by non-reporting companies to their employees,
officers, directors, trustees, consultants, or advisors under written compensatory benefit plans or
written agreements relating to compensation. Issuers conducting compensatory benefit plan
offerings in excess of $10 million in reliance on Rule 701 during any consecutive 12-month
period are required to provide plan participants with certain disclosures, including financial
statement disclosures. 1 This disclosure constitutes a collection of information. Form S-8 is the
simplified form for the registration of securities transactions involving an issuance to a
registrant’s employees (as defined by the form) in a compensatory or incentive context and for a
non-capital-raising purpose. Both Rule 701 and Form S-8 reflect the Commission’s longstanding position that offers and sales of securities for compensatory purposes raise different
issues, and therefore warrant different treatment, than offers and sales of securities for capital
raising purposes.
The proposed amendments would modernize Rule 701 and Form S-8 to address the new
types of work relationships between companies and individuals that have emerged in the socalled “gig economy.” These have arisen in large part due to the internet and typically have
1

See 17 CFR 230.701(e).

involved an individual’s use of a company’s internet “platform” to find a particular type of work,
or “gig” (i.e., task or job). The work could involve the individual providing services to end
users, such as ride-sharing, food delivery, household repairs, dog-sitting, or tech support, or
using the platform to sell goods or lease property to third parties.
The proposed amendments would amend Rule 701 by adding a temporary rule provision
that, for five years, would enable issuers to use Rule 701 to compensate certain “platform
workers,” subject to specified conditions. Under the amendments, an issuer would be able to use
the Rule 701 exemption to offer and sell its securities on a compensatory basis to platform
workers who, pursuant to a written contract or agreement, provide bona fide services by means
of an internet-based platform or other widespread, technology-based marketplace platform or
system provided by the issuer if:


the issuer operates and controls the platform, as demonstrated by its ability to provide
access to the platform, to establish the principal terms of service for using the
platform and terms and conditions by which the platform worker receives payment
for the services provided through the platform, and by its ability to accept and remove
platform workers participating in the platform;



the issuance of securities to participating platform workers is pursuant to a
compensatory arrangement, as evidenced by a written compensation plan, contract, or
agreement, and is not for services that are in connection with the offer or sale of
securities in a capital-raising transaction, or services that directly or indirectly
promote or maintain a market for the issuer’s securities;



no more than 15% of the value of compensation received by a participating worker
from the issuer for services provided by means of the platform during a 12-month
period, and no more than $75,000 of such compensation received from the issuer
during a 36-month period, shall consist of securities, with such value determined at
the time the securities are granted;



the amount and terms of any securities issued to a platform worker may not be subject
to individual bargaining or the worker’s ability to elect between payment in securities
or cash; and



the issuer must take reasonable steps to prohibit the transfer of the securities issued to
a platform worker pursuant to this exemption, other than a transfer to the issuer or by
operation of law.

The proposed amendments would also permit an Exchange Act reporting company to
make registered securities offerings to its platform workers using Form S-8. The same
conditions proposed for Rule 701 issuances would apply to issuances to platform workers on
Form S-8, except for the proposed transferability restriction. The proposed conditions are
intended to facilitate compensatory transactions with platform workers while limiting the
possibility that the amendments could result in offers and sales for capital-raising purposes.

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The proposed amendments would also require an issuer to provide certain information
every six months concerning issuances to platform workers. This information would assist the
Commission in evaluating the expanded use of Rule 701 and Form S-8 in order to help determine
whether to permit such use on a permanent basis and under the same or different conditions.
3. CONSIDERATION GIVEN TO INFORMATION TECHNOLOGY
Form S-8 is filed electronically with the Commission using the Commission’s Electronic
Data Gathering and Retrieval (EDGAR) system. The information required to be furnished every
six months under the proposed amendments would be furnished in a non-public manner
designated by the Division of Corporation Finance for this purpose, for example, electronically
by email or by some other means of electronic communication.
4. DUPLICATION OF INFORMATION
The Commission makes every effort to coordinate with other regulatory entities when
necessary or appropriate in the public’s interest and for the protection of investors and to
streamline regulations to enhance the production of capital. We are not aware of any U.S. forms
or rules that conflict with or substantially duplicate the requirements of Rule 701 or Form S-8.
5. REDUCING THE BURDEN ON SMALL ENTITIES
The proposed amendments would apply only to issuers whose platform workers provide
services; they would not apply to issuers whose platform workers are providing goods. We
estimate that there are only a limited number of companies with platforms providing services that
would be affected by the proposed rules. 2 Although it is possible that the proposed amendment
to Form S-8 could cause a small entity to file a Form S-8 for the issuance of securities to its
platform workers, based upon staff review of Commission filings during 2018-2019, and due to
the resulting burden and expense, we do not believe that this outcome is likely. 3 Rule 701
applies only to non-public companies. Because there is a lack of information concerning the
assets of potentially affected non-public companies, it is difficult to estimate with certainty the
number of non-public issuers that qualify as small entities that would be eligible to rely on the
proposed amendment to Rule 701 or that would choose to become public companies and then
rely on the proposed amendment to Form S-8.
We believe that the proposed amendment to Rule 701 could be of particular benefit to
small entities, which may be financially constrained, by enabling them to issue securities as
compensation, instead of cash, within the proposed limits. This could help small entities attract
potential workers and enhance their competitive position. In contrast, we do not believe that the
compliance burden of the proposed Rule 701 amendment, including the information-furnishing

2

Based upon a review of Commission filings and other relevant data for 2018-2019, the staff estimated that the
proposed rules would affect 122 companies, 17 of which are public and 105 of which are private.

3

None of the 17 Forms S-8 filed by issuers with service-providing platforms were small entities.

3

requirement, would be significant. 4 We believe that it is unlikely that a small entity would reach
the annual $10,000,000 threshold that would require it to provide financial information pursuant
to Rule 701(e).
6. CONSEQUENCES OF NOT CONDUCTING COLLECTION
The rule and form listed above set forth the conditions and disclosure requirements for
compensatory issuances of securities to an issuer’s employees, consultants, or advisors. The
proposed amendments would temporarily add a new class of workers, “platform workers,” to the
list of persons eligible to receive securities under Rule 701 or on Form S-8. Failure to conduct
these collections of information would reduce the investment opportunities of such persons and
information available to them as investors.
7. SPECIAL CIRCUMSTANCES
There are no special circumstances in connection with the proposed amendments.
8. CONSULTATIONS WITH PERSONS OUTSIDE THE AGENCY
In July 2018, the Commission published a concept release to solicit comment on whether
and how best to modernize the exemption under Rule 701 and to update Form S-8. In the
release, the Commission requested comment on how to address, consistent with investor
protection, the significant evolution that has taken place in the types of issuer compensatory
offerings and the composition of the workforce since the Commission last substantively amended
this rule and form.5 Regarding workforce changes, the Commission focused on the new types of
work relationships between companies and individuals that have emerged in the so-called “gig
economy.” Several commenters on the Concept Release stated that, given the characteristics of
these new work relationships, the individual workers might not be employees, consultants,
advisors, or de-facto employees eligible to receive securities in compensatory arrangements
under Rule 701 or on Form S-8. Those commenters recommended expanding the scope of Rule
701 and Form S-8 to include offerings to gig economy workers (also known as “platform
workers”). Comments received on the Concept Release are available at
https://www.sec.gov/comments/s7-18-18/s71818.htm.
The Commission issued Securities Act Release No. 33-10892 to solicit comment on
extending the “collection of information” requirements and associated paperwork burdens of
Rule 701 and Form S-8 to compensatory issuances to platform workers on a trial basis (for five
years). Issuers, investors, industry groups, civil society organizations, and other market
participants may provide comments in response to the solicitation for comment in the Proposing
Release. In addition, the Commission and staff may participate in ongoing dialogue with
4

As discussed below, we estimate that the compliance burden associated with furnishing the required
information under the proposed Rule 701 amendment would be 1.5 hours for each semi-annual disclosure per
issuer, or a total of 3 hours per issuer on an annual basis.

5

See Concept Release on Compensatory Securities Offerings and Sales, Release No. 33-10521 (July 18, 2018)
[83 FR 34958 (July 24, 2018)] (“Concept Release”).

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representatives of various interested parties through meetings, public conferences, and
roundtables.
9. PAYMENT OR GIFT TO RESPONDENTS
No payment or gift to respondents.
10. CONFIDENTIALITY
Form S-8 is a public document. Rule 701 applies solely to non-public issuers. The
proposed amendments would require issuers providing securities to platform workers under
either Rule 701 or on Form S-8 to provide certain information about such issuances every six
months to the Commission on a non-public basis.
11. SENSITIVE QUESTIONS
No information of a sensitive nature will be required under the following collection of
information in connection with these rulemaking amendments: The information collection of
Form S-8 collects basic Personally Identifiable Information (PII) that may include name,
telephone number and job title. However, the agency has determined that the information
collection does not constitute a system of record for purposes of the Privacy Act. Information is
not retrieved by a personal identifier. In accordance with Section 208 of the E-Government Act
of 2002, the agency has conducted a Privacy Impact Assessment (PIA) of the EDGAR system, in
connection with this collection of information. The EDGAR PIA, published on February 5, 2020,
is provided as a supplemental document and is also available at https://www.sec.gov/privacy.
No information of a sensitive nature, including social security numbers, will be required
under this collection of information. Rule 701 does not collect personally identifiable
information (PII). The agency has determined that a system of records notice (SORN) and
privacy impact assessment (PIA) are not required in connection with the collection of
information
Some of the information proposed to be required under the amendments every six months
includes information about an issuer’s platform workers and non-platform workers that some
issuers may deem commercially sensitive. The proposed amendments would enable issuers to
submit the required information on a non-public basis and to apply for confidential treatment of
such submissions under existing Commission rules.

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12/13. BURDEN OF INFORMATION COLLECTION AND COSTS TO
RESPONDENTS
The estimated burden hours and cost burden are made solely for the purposes of the
Paperwork Reduction Act and represent the average burden for all issuers. The cost burden is
not derived from a comprehensive or even a representative survey of the costs of Commission
rules and forms.
We currently estimate for Form S-8 that there are 2,140 responses per year, and that 50%
of the burden per response is prepared internally by the issuer and 50% of the burden per
response is prepared by outside professionals retained by the issuer at a cost of $400 per hour. 6
We currently estimate that the preparation and filing of Form S-8 requires a total of 28,890
internal hours and outside professional costs of $11,556,000 on average per year.
We currently estimate for Rule 701 that there are 800 responses per year, and that 25% of
the burden per response is prepared internally by the issuer and 75% of the burden per response
is prepared by outside professionals retained by the issuer at a cost of $400 per hour. We
currently estimate that the preparation and filing of financial information pursuant to Rule 701(e)
requires a total of 400 internal burden hours and outside professional costs of $480,000 on
average per year.
The following table summarizes the estimated effects of the proposed amendments on the
paperwork burdens associated with the affected collections of information.

6

We recognize that the costs of retaining outside professionals may vary depending o n the nature of the
professional services, but for purposes of this PRA analysis, we estimate that such costs would be an average of
$400 per hour. This estimate is based on consultations with several registrants, law firms, and other persons
who regularly assist registrants in preparing and filing reports with the Commission.

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PRA Table 1. Estimated Paperwork Burden Effects of the Proposed Amendments
Collection
of
Information
Form S-8

Proposed Amendment

 Would temporarily expand
the scope of Form S-8 to
include issuances to a
registrant’s platform
workers in addition to its
employees.

Expected Estimated PRA
Effect of Proposed
Amendment
 Expected to increase the
average annual number of
Form S-8s filed during the
temporary 5-year period.

 Issuers would be required to  Expected to increase PRA
burden by 2 hours per
furnish certain information
affected respondent annually
every six months.
(i.e., 1 hour for each semiannual response).
Rule 701

1

 Would temporarily expand
the scope of Rule 701 to
exempt issuances to an
issuer’s platform workers in
addition to its employees.

 Expected to increase
average annual number of
issuers required to provide
Rule 701(e) disclosure
because offers and sales to
platform workers would be
integrated with offers and
sales to employees for
purpose of determining
whether an issuer has
exceeded the $10 million
threshold under Rule 701(e).

 Issuers would be required to
furnish certain information
every six months.

 Expected to increase PRA

burden by 3 hours per
affected respondent
annually (i.e., 1.5 hours for
each semi-annual
response).2

Current No. of
Average Annual
Responses
 2,140

Estimated
Increase in No.
of Average
Annual
Respondents 1
 17

0

 17

 800

6

0

 105

These estimates are based on a study (described in Release No. 33-10892 as the “Farrell Study”), which
identified 106 companies making payments to online platform workers providing services during 2012-2018.
The staff updated this study’s findings using an assumed growth rate of 15 percent for such companies in 2019,
which yielded an estimate of 122 companies making payments to platform workers as of calendar year-end
2019. Upon a review of Commission filings, the staff estimated that 17 of those companies are public, and 105
private. The staff further estimated that 5 percent of those private companies (six companies) would likely
exceed the $10,000,000 threshold for aggregate annual securities offerings to its employees and platform
workers and would be required to provide the disclosure pursuant to Rule 701(e). In making this estimate, the
staff relied on the PRA estimates in Release No. 33-10520, which increased the Rule 701(e) disclosure
threshold from $5,000,000 to $10,000,000.

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2

We estimate a greater increase in the PRA burden for Rule 701(h)’s furnished disclosure provision because it
would solicit more information compared to the similar proposed provision for Form S-8.

We estimate that the proposed amendments would change both the frequency of
responses to, and the burden per response of, the existing collections of information. The burden
increase estimates were calculated by multiplying the estimated increased number of responses
by the increased estimated average amount of time it would take to prepare and review the
disclosure required under the affected collection of information. The table below illustrates the
incremental change to the annual compliance burden of the affected collections of information,
in hours and in costs.

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PRA Table 2. Calculation of the Incremental Change in Burden Estimates of Current
Responses Resulting from the Proposed Amendments
Collection of
Information

S-8
(including
furnished
disclosure)
Rule 701(e) +
Rule 701(h)
furnished
disclosure
Rule 701
(only
furnished
disclosure)
Rule 701
(total)

Number of
Estimated
Affected
Respondents

Burden
Hour
Annual
Increase
per
Affected
Respondent

(A)

(B)

17

291

493

246.5

246.5

$98,600

6

52

30

7.5

22.5

$9,000

99

3

297

74.25

222.75

$89,100

327

81.75

245.25

$98,100

105

Increase in
Burden Hours
for Affected
Respondents

(C) = (A) x (B)

Increase in
Internal
Burden
Hours for
Affected
Respondents

Increase in
Professional Hours
for Affected
Respondents

(D) = (C) x
0.5 or 0.25

(E) = (C) x 0.5
or 0.75

Increase in Professional
Costs for Affected
Respondents

(F) = (E) x $400

1

Based on the current OMB inventory of 27 annual burden hours per response + 1 burden hour for
each semi-annual required furnished disclosure (2 additional annual burden hours) = an increase of 29 burden
hours per response.

2

Based on the current OMB inventory of 2 annual burden hours per response + 1.5 burden hours for each semiannual required furnished disclosure (3 additional annual burden hours) = an increase of 5 burden hours per
response.

The table below illustrates the program change expected to result from the proposed rule
amendments together with the total requested change in reporting burden and costs.

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PRA Table 4. Requested Paperwork Burden under the Proposed Amendments
Collection
of
Information

S-8

Current Burden

Program Change

Requested Change in Burden

Current
Annual
Responses
(A)

Current
Burden
Hours
(B)

Current Cost
Burden
(C)

Number of
Affected
Responses
(D)

Change in
Issuer
Hours
(E)

Change in
Professional
Costs
(F)

Requested
Annual
Responses
(G)

Requested
Burden
Hours 1
(H) = (B)
+ (E)

2,140

28,890

$11,556,000

17

246.5

800

400

$480,000

105

81.75

Cost
Burden
(I) = (C)
+ (F)

$98,600

2,157

29,137

$11,654,600

$98,100

905

4822

$578,100

Rule 701
1

Rounded to nearest whole number.

2

Thus, the estimated change in internal burden would result in an annual internal burden per response of
2.13 hours, which is a slight increase in the current annual internal burden of 2 hours. 482/.25 = 1,928; 1,928/905
= 2.13.

14. COSTS TO FEDERAL GOVERNMENT
The annual cost of reviewing and processing disclosure documents, including registration
statements, post-effective amendments, proxy statements, annual reports and other filings of
operating companies amounted to approximately $103,479,690 in fiscal year 2019, based on the
Commission’s computation of the value of staff time devoted to this activity and related
overhead.

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15. REASON FOR CHANGE IN BURDEN
As explained in further detail in Items 12 and 13 above, the increase in burden for Form
S-8 and Rule 701 results from both an increase in the annual number of Form S-8 and Rule 701
responses, and in the burden hours per response, estimated to result from the proposed
amendments. Specifically, we estimate that the proposed amendments would result in an
increase of 17 additional Form S-8 responses and 105 Rule 701 responses per year, which would
increase the average annual number of responses for Form S-8 from 2,140 to 2,157, and the
average annual responses for Rule 701 from 800 to 905. We also estimate that the proposed
amendments would result in an increase in issuer burden hours for Form S-8 of 247 hours, which
would increase the total number of annual internal burden hours from 28,890 hours to 29,137
hours; and in an increase in issuer burden hours for Rule 701 of 82 hours, which would increase
the total number of annual internal burden hours from 400 hours to 482 hours. We further
estimate that the proposed amendments would result in an increase in professional costs for
Form S-8 of $98,600, which would increase the total annual outside cost burden from
$11,556,000 to $11,654,600; and in an increase of professional costs for Rule 701 of $98,100,
which would increase the total annual outside cost burden from $480,000 to $578,100.
16. INFORMATION COLLECTION PLANNED FOR STATISTICAL PURPOSES
The information collection does not employ statistical methods.
17. APPROVAL TO OMIT EXPIRATION DATE
We request authorization to omit the expiration date on the electronic version of Form
S-8 for design and scheduling reasons. Including the expiration date on the electronic version of
the form will result in increased costs, because the need to make changes to the form may not
follow the EDGAR application’s scheduled version release dates. The OMB control number will
be displayed.
18. EXCEPTIONS TO CERTIFICATION FOR PAPERWORK REDUCTION ACT
SUBMISSIONS
There are no exceptions to certification for Paperwork Reduction Act submissions.
B. STATISTICAL METHODS
The information collection does not employ statistical methods.

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Short Statement for Form S-8
Form S-8 is the simplified form for the Securities Act registration of securities
transactions involving an issuance to a registrant’s employees, as defined by the form, in a
compensatory or incentive context and for a non-capital-raising purpose. The proposed
amendments would amend Form S-8 to permit compensatory issuances to an issuer’s platform
workers. For purposes of the Paperwork Reduction Act, we estimate that the proposed
amendments would result in: an increase of 17 additional Form S-8 responses per year, which
would increase the average annual number of responses for Form S-8 from 2,140 to 2,157; an
average annual increase in internal burden hours of 247 hours, which would increase the total
number of annual internal burden hours from 28,890 hours to 29,137 hours; and an increase in
professional costs of $98,600, which would increase the total annual outside cost burden from
$11,556,000 to $11,654,600.

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Short Statement for Rule 701
Rule 701 provides an exemption from the registration requirements of Securities Act
Section 5 for offers and sales of securities by non-reporting companies to their employees,
officers, directors, trustees, consultants, or advisors under written compensatory benefit plans or
written agreements relating to compensation. Issuers conducting compensatory benefit plan
offerings in excess of $10 million in reliance on Rule 701 during any consecutive 12-month
period are required to provide plan participants with certain disclosures, including financial
statement disclosures. This disclosure constitutes a collection of information. The proposed
amendments would allow non-reporting issuers to issue securities to their platform workers for a
compensatory purpose and on a trial basis. For purposes of the Paperwork Reduction Act, we
estimate that the proposed amendments would result in: an increase of 105 additional Rule 701
responses per year, which would increase the average annual number of responses for Rule 701
from 800 to 905; an average annual increase in internal burden hours of 82 hours, which would
increase the total number of annual internal burden hours from 400 hours to 482 hours; and an
increase in professional costs of $98,100, which would increase the total annual outside cost
burden from $480,000 to $578,100.

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