We have a client that is using the SEC Code CCD to pay 1099 consumer sub-contractors out of their business account. I have informed them that they must use the PPD SEc Code for any payroll purposes, but they insist that they are not company employees, only employees of companies they are sub-contracting with.

I think the PPD must be used when paying any employee so that the RDFI is obligated to use the return rules and time-frames asscoaited with that particular SE COde.

Whose correct?

I would refer to the definition of each provided by NACHA for CCD & PPD (Sections 8.20 and 8.65, respectively). Basically, for a CCD the receiver is a corporate account. For a PPD, the receiver is a consumer account. They don't list a purpose of the transaction as a deciding factor.

The SEC code does not imply the purpose of an item. It only designates whether the receiver is a corporate or a consumer account. The client is in violation of the ACH Rules for proper use of the SEC code. As for your concern about return timeframes, if they are sending NOC's before originating live ACH entries, their shouldn't be much of a return risk on these---especially considering they are credits.