Answers - Payroll 101 - Entertainment Payroll Basics
Entertainment Payroll Basics
The basic laws covering film and TV production payroll are similar to those that govern payroll for other businesses. But some wage-and-hour rules are made specific to the entertainment business in the California Wage Order for the Motion Picture Industry. Other provisions are made for specific crew member classifications, or for entire areas of production, in collective bargaining agreements negotiated by film and TV union locals. In this section, we examine some of the basic legal requirements for processing entertainment payroll, particularly in the state of California. We also define and explain some common terms in entertainment labor law, e.g. workweek, hours worked, regular rate of pay, the difference between a discretionary and nondiscretionary bonus, and the distinction between net pay and disposable pay. Many of these rules and terms will be most useful in non-union payroll situations, but some will apply to union cast and crew as well.
Minimum Wage and Overtime Laws
The Fair Labor Standards Act (Federal) requires that all non-exempt employees be paid 1 ½ times their regular rate of pay for all hours actually worked over 40 hours in one week. According to the California Labor code, section 500-510, all non-exempt employees must be paid 1 ½ times their regular rate of pay for all hours actually worked after 8 hours per day, 2X after 12 hours. For the 6th day worked, 1 ½ for the first 12 hours, 2X after 12. For the 7th day worked, 1 ½ for the first 8 hours worked, 2X after 8 hours.
Regular Rate of Pay
The regular rate of pay is an hourly pay rate determined by dividing the total regular pay actually earned for the workweek by the total number of hours worked.
“Hours Worked” Defined
“Hours Worked” includes the time during which an employee is subject to the control of an employer, and includes all the time the employee is permitted to work, whether or not required to do so.
A workweek is defined by the FLSA is a fixed, recurring period of 168 consecutive hours (7 days X 24 hours).
A workweek defined by the California Labor Code and the IWC is any seven consecutive 24 hour periods, starting with the same calendar day each week, beginning at any hour on any day, so long as it is fixed and regularly recurring.
What’s Included in Regular Rate of Pay
Base pay for all hours worked. Nondiscretionary bonuses – also known as “bumps,” “adjustments” or any payment made related to production, efficiency, quality or performance. Fair market value of noncash items. Shift premiums. Retroactive pay – it must be prorated over the period covered.
Multiple Hourly Rate Calculations
The following example is how to calculate multiple rates worked in one workweek:
Mon – $8.00 X 8 hours = $64.00
Tues – $8.00 X 9 hours = $72.00
Wed – $9.50 X 8 hours = $76.00
Thur – $10.50 X 10 hours = $105.00
Fri – $8.00 X 8 hours = $64.00
Total – $381.00
$381.00 divided by 43 hours = $8.86
$8.86 X .5 = $4.43 (overtime premium rate)
$4.43 X 3 hours = $13.29 (premium for overtime)
$381.00 + $13.29 = $394.29 = Total weekly pay
Bonuses (Discretionary vs. Nondiscretionary)
The answer to whether a bonus, adjustment or bump must be included in the regular rate of pay for overtime depends on the reason for the extra pay. A nondiscretionary bonus, or one that is promised or announced to the employee in advance to being paid or that is dependent on hours worked, or productivity must be included in the regular rate of pay for overtime purposes. For example, an hourly employee who earns $8.00 per hour in a 40 hour workweek has a regular rate of pay of $8.00 per hour and an overtime rate of $12.00 ($8.00 X 1.5). If that same employee received a $50.00 production adjustment for that week, the employee’s regular rate of pay would change to $9.25 per hour ($50.00 plus the regular weekly rate of $320.00, divided by 40 hours) and the overtime rate becomes $13.88 per hour for that week ($9.25 X 1.5). A discretionary bonus which is paid solely at the discretion of the employer, such as a Christmas bonus, does not have to be included in the regular rate of pay. The bonus should not be measured by or dependent on hours worked, productivity, or efficiency, and it may not be part of any employment agreement.
Retroactive pay is a delayed payment for work which has already been completed. The most common reason is ongoing labor negotiations. While negotiations are being reached, the employer continues to pay the employees at their established rate. When the negotiations are over, and there is a clause that entitles the employees to a wage increase on a set date, the employer is required to make up the difference with a retroactive pay check. Media Services calculates all retroactive payments for its clients, based on union agreements.
For non-union film and TV crew, there is no legal requirement in California that an employer provide its employees with paid or unpaid vacation time. However, if an employer has an established policy to provide paid vacation, then certain restrictions are placed on the employer as to how it fulfills its obligation. Under California law, earned vacation time is considered wages, and vacation time is earned, or “vests,” as labor is performed. Vacation pay accrues as it is earned, and cannot be forfeited, even upon termination of employment, regardless of the reason for the termination. All earned and unused vacation must be paid to the employee upon termination at his or her final rate of pay. In California because vacation pay is considered wages, an employer cannot have a “use it or lose it” policy, it is illegal and will not be recognized by the Labor Commissioner. An employer can put a “cap” or “ceiling” on vacation time that can be accrued. Once a certain level or amount of accrued vacation is earned and not taken, no further vacation pay accrues until the balance falls below the cap.
Minimum Wage and Overtime Laws
The Fair Labor Standards Act (Federal) requires that all non-exempt employees be paid 1 ½ times their regular rate of pay for all hours actually worked over 40 hours in one week. According to the California Labor code, section 500-510, all non-exempt employees must be paid 1 ½ times their regular rate of pay for all hours actually worked after 8 hours per day, 2X after 12 hours. For the 6th day worked, 1 ½ for the first 12 hours, 2X after 12. For the 7th day worked, 1 ½ for the first 8 hours worked, 2X after 8 hours. For union employees, their vacation pay is determined by a Collective Bargaining Agreement. Most agreements pay 4% of straight time earnings directly on the employee’s check.
There is nothing in California state law that mandates an employer to pay an employee a special premium for work on a holiday, Saturdays, or Sundays, other than the overtime premium required for work over 8 hours in a day and 40 hours in a workweek. For union employees subject to a collective bargaining agreement, such as the Hollywood Basic, holiday is generally accrued at 3.719% of straight time earnings and paid out at the end of the show.
To ensure that employers comply with the law governing the payment of wages when an employment relationship ends, the Legislature enacted Labor Code 203, which provides for a penalty against the employer when there is a willful failure to pay wages due the employee at the end of the employment relationship. If an employee is fired, all wages including any unused vacation must be paid at termination. The same applies if the employee has given 72 hours notice of quitting. If the employee does not give notice, the employer has 72 hours to make payment or waiting time penalties will apply. The penalty is the employee’s daily rate for each day the employee was not paid, up to a maximum of 30 days. The waiting time penalty is not wages, so no deductions are taken from the payment. The penalty includes all days including weekends, non-workdays and holidays.
In the state of California, employers must give employees a 10 minute paid rest period for every 4 hours worked. The rest break must be given as close to the middle of the 4 hour period as practical. A rest period is not required for employees who total daily work time is less than 3 ½ hours. If an employer fails to give an employee a rest period, the employer shall pay the employee one additional hour of pay at the employee’s regular rate of pay for each workday that the rest period is not provided. Working through rest periods does not entitle an employee to leave early or come to work late.
Reporting Time Pay
Reporting time pay is an important concept for production payroll. Each workday an employee is required to report to work, but is not put to work or is furnished with less than half of his or her usual or scheduled day’s work, the employee must be paid for half the usual or scheduled day’s work, for no less than 2 hours and no more than 4 hours. No reporting time pay is due when the following conditions exist: 1. When the employer’s operations cannot begin or continue due to threats to employees or property. 2. When public utilities fail to supply electricity, water or gas. 3. When the interruption of work is caused by an “Act of God,” such as an earthquake. 4. When the employee leaves work on his or her own accord. Reporting time pay is not considered wages, and therefore not used in determining if overtime is due.
In California, an entertainment industry employer may not have an employee work for a period of more than 6 hours (5 hours for other industries) per day without providing a meal period of at least 30 minutes. The exception to this rule is when the total work per day is 6 hours or less. Unless the crew member is relieved of all duty during his or her 30 minute meal period, it is considered a “on duty” meal period that is counted as hours worked and paid at the employee’s regular rate of pay. If the production fails to provide an employee a meal period, the company must pay one additional hour of pay at the employee’s regular rate of pay for each workday that a meal period is not provided.
Many states and unions have regulations regarding final payments to employees who are laid-off. In many cases a check must be issued within 24 hours after the lay-off, excluding Saturdays and Sundays. California law states that if an employee is fired, the final check must be given immediately. If the employee quits, the check must be available within 72 hours, or immediately if 72 hours notice was given. On the final timecard for an employee the production should write “Finished” or “COA” (completion of assignment) and get it to the payroll company as soon as possible. If an employee is fired for cause and the production wishes to fight unemployment for the fired employee, they should write “fired” on the timecard and attach a full explanation.
Disposable Pay vs. Net Pay
Under the CCPA (Consumer Credit Protection Act) earnings, for the purpose of defining disposable pay include salaries, commissions, bonuses or other compensation. They also include payments to a retirement and pension program. Disposable pay is not net pay. Net pay is the result of subtracting all deductions from gross pay. Disposable pay is derived by deducting from gross pay all deductions required by law, including federal and state taxes. Not included is deductions for health insurance, retirement plans, credit unions, bonds, other wage attachments and voluntary deductions. The computation for disposable pay varies from state to state. Where state and federal differ, employees are protected by whichever law is the most protective of the employee.
This includes any income that is voluntarily withheld to pay for an employee’s medical or dental premiums, or any contributions to a “cafeteria” type medical plan. It can also include contributions to a retirement plan such as a 401(k). Media Services offers health plan options to clients who process their in-house staff payroll with us. We will also withhold contributions for a retirement plan, if the production company or studio provides one.
Deductions from Pay: Voluntary vs. Involuntary
There are two kinds of employee payroll deductions: voluntary and involuntary. Voluntary deductions include those mentioned above, such as health plan premiums and 401(k) deductions. Involuntary deductions include all garnishments, such as tax levies, marital and child support, attachments and creditor collections. While income tax may be an involuntary deduction, the employee to some extent determines the rate at which taxes are deducted each paycheck, via withholdings on his or her W-4.