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Production Accounting in the Age of COVID-19

Production Accounting COVID masked woman

If there’s one film department that’s had to scramble since the COVID-19 shutdowns began, it’s the production accounting team. As film and TV shoots are rescheduled or relocated due to the pandemic, accountants are working hard to keep their production budgets accurate, while also finding contactless solutions to start paperwork, timecards and petty cash.

And if that wasn’t enough, remote production accounting teams are also making room for whole new line items in their film budgets, for everything from PPE to COVID-19 testing to on-set medical specialists.

So what are some tips for production accountants trying to keep their heads (and production companies) above water in these trying COVID-19 times?

Let’s take a look.

Production Accounting needs to be flexible to keep up with COVID.

One thing we can’t stress enough for production accounting during COVID-19 is flexibility. As we’ve seen too many times, states and even local production sites are susceptible to coronavirus shutdowns. This can happen even after the area has been given the green light to reopen.

Production accountants should work with their line producers to plan for this, by having two or three options for each filming location. Does that mean three times the work to gather costs for budget line items, based on the area?

Not necessarily: a sharp accounting team can create a film budget template and create alternate scenario budgets by simply tweaking the appropriate line items based on locale.

For example, while food and lodging is more expensive in Los Angeles than Louisville, some items such as mileage rate and federal fringes are largely fixed. If you find your contingency location budget saves some money, discuss those “found” funds with your producer. The UPM or network make the ultimate call on where to spend any windfall on a show, but it’s up to the production accounting unit to bring them to their attention.

Some film budgeting software, such as Movie Magic or our own Showbiz Budgeting, lets the production accountant set up globals to apply universally, while adjusting variables for the individual alternate budgets. Showbiz even lets you compare those alternate film budgets side-by-side, with a feature called Phases.

Speaking of alternate budgets and savings, here’s the next tip:

Build a COVID Contingency into the Production Budget

Production accounting for film, TV and other media projects has always been a calculated dance. As the production accountant, you know your producers want mainly “good” surprises. This could be a budget windfall at some point during principal photography which can be carried forward into post production, or may even mean an extra day to get that shot that was a “nice to have” but not a must for the show.

And how do seasoned production accountants deliver those good surprises? By doing their research, and including a decent contingency in the budget. Usually 10% or so, this line-item cushion allows for the little things that come up on production, which no one could have planned for. Also helps account for longer shoot days and more overtime / meal penalties than expected.

But with the COVID-19 pandemic throwing a major monkey wrench into the film production works, as they say in road construction: Expect delays.

COVID testing time is work time on production, as is taking temperatures, disinfecting surfaces, putting on masks, gloves and other PPE on set. It’s going to take longer to break the crew for meals, with staggered spaces and meal times, and longer to coordinate logistics while keeping film crews six feet apart.

The production accounting team should plan for the added costs which will necessarily ensue on their film and TV projects, by setting a realistic contingency with the producer. We’ve even seen some producers and production accountants doubling or tripling their typical contingency amount.

Other accountants have started using a COVID category in their budgets, which can add 15-20% to the bottom line. Better safe than sorry, when you’re dealing with the great unknown of this virus and the many COVID-19 production guidelines by state.

Accounting for COVID-19 Protection on Production

We’ve touched on personal protective equipment, or PPE, on the film set. Mask, gloves, testing, quarantined accommodations when necessary: the production accountant needs to build all these into the project’s budget.

Don’t go cheap here. Production Accounting may look like a hero scoring Big Al’s gently used latex gloves for half price, but no savings are worth jeopardizing the safety of the crew on a film shoot.

Not only that, but as we’ve seen in the age of COVID-19, the PPE market can fluctuate rapidly with supply and demand. Better to budget on the high end for quality PPE for your film crew, and be pleasantly surprised if you can get it for less than you thought.

Additional COVID-related budget line items for Production Accounting to consider

The industry white paper on production guidelines in the era of coronavirus calls for a COVID-19 Compliance Officer on set. This new position is to have specialized training in safety compliance and enforcement for keeping film sets safe from the disease.

Some film and TV productions are going a step further in bringing a full-time registered nurse on set. Beyond the payroll for these new roles, testing kits and thermometers are additional costs that need to be accounted for on production.

In fact, for accurate film budgets, the production accounting department is best served by talking to a specialty service for COVID-19 safety on set. Such services are cropping up quickly, with some pivoting from an already existing non-production health compliance service.

Usually for a flat fee per crew member, these set safety and health services can provide everything for a production: thermometers, testing kits, disinfection, registered nurse, COVID-19 Compliance Officer and PPE for the crew and cast.

This is a new era, and no production accountant will do this perfectly first time through. But if you plan carefully and communicate with your production team, you and your film project can weather the ups and downs of these uncertain times.

Need remote production accounting for your film or TV project? Reach out to us here.

CARES Act: What’s in It for Production Companies

Below are our summaries of some of the relevant sections of the CARES Act passed by Congress and signed into law March 24. As always, consult with your legal counsel and financial advisors as to best options for your company’s particular situation.

Paycheck Protection Program

The Paycheck Protection Program has given the Small Business Administration authority to provide small business loans with special properties, backed by the federal government.

The program is for employers who maintain their payroll during the COVID-19 emergency. If employers generally maintain their payroll, the loan would be eligible for forgiveness of up to 8 weeks of payroll plus utility and rent/mortgage interest costs, based on employee retention and salary level continuity.

Loans will also have no SBA fees, and at least six months of deferral with maximum deferrals of up to a year. Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020.

This program would be retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls; loans are available through June 30, 2020.

The program and its eligibility requirements can be broken into two distinct parts: the loan itself, and the forgivable part of it (what the government will pay off for you).

The loan itself

  • The types of businesses and entities eligible for the Paycheck Protection Program are businesses with fewer than 500 employees, sole proprietors, nonprofits, independent contractors, tribal entities, and eligible self-employed individuals. To be eligible the business must have been in operation on February 15, 2020.
  • The maximum loan amount is the lesser of: $10 million or 250% of average monthly payroll costs through December 31, 2020 and the maximum maturity is 10 years after application for forgiveness.
  • Business loans may be used for payroll support, such as employee salaries, commission, regular paid leave (not COVID-19 leave, which is covered under a different provision), insurance premiums, mortgage, rent and utility payments. The loan must include a “good faith certificate” to use funds for this purpose.
  • Limitation on loans – CANNOT use to compensate employees at an annual rate of pay above $100,000 (prorated to the eight weeks) or to pay for emergency sick and family leave.
  • Any canceled debt under the program is excluded from borrower’s gross income for tax purposes.

Loan forgiveness

Borrowers may be eligible for loan forgiveness equal to the amount spent during an 8 week period after the origination date of the loan on: payroll costs; interest payment on any mortgage incurred prior to February 15, 2020; payment of rent for lease in force prior to February 15, 2020; payment of utility services that were begun prior to February 15, 2020.

  • Amounts forgiven of course may not exceed the principal amount of the loan.
  • Forgiveness is equal to the sum of payroll costs incurred during covered 8 week period compared to the previous year or time period, proportionate to maintaining employees and wages:
  • Formula: Payroll costs PLUS any payment of interest on any covered mortgage obligation (not including any prepayment of or payment of principal on a covered mortgage obligation) PLUS any payment on any covered rent obligation and any covered utility payment
  • Forgiveness Reduction: Amount forgiven is reduced proportionately by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25 percent of their prior year compensation.

Emergency EIDL grants & loans

These grants provide an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19 within three days of applying for an SBA Economic Injury Disaster Loan (EIDL).

The advance is intended to provide immediate assistance for eligible expenses such as keeping employees on payroll, paying for sick leave or to pay business obligations including debts, rent and mortgage payments. The advance does not need to be repaid… in other words, it just comes off the top of the loan.

Entities that can apply for an EIDL have been expanded to include tribal business, cooperatives and ESOP’s with fewer than 500 employees or any individual operating as a sole proprietor or independent contractor between January 31, 2020 and December 31, 2020.

The loan maximum is $2 million… with the emergency advance on that loan set at maximum $10,000.

Payroll Tax Credit

A refundable payroll tax credit for 50% of qualified wages paid to certain employees during the COVID-19 crisis is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings.

The credit is also provided to employers who have experienced a greater than 50 percent reduction in quarterly receipts, measured on a year-over-year basis. The credit is for wages paid between March 13, 2020 through December 31, 2020.

  • For eligible employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19 related circumstances described above.
  • For eligible employers with fewer than 100 full time employees, all employee wages qualify for the payroll tax credit, whether the employer is open for business or subject to a shut-down order
  • Credit will be capped after the first $10,000 of compensation, including health benefits, paid to an eligible employee.
  • Employers participating in the Paycheck Prevention Program are NOT eligible for the payroll tax credits.

Deferred Employer Payroll Taxes

Employers and self-employed individuals can defer 50% of the employer share of the Social Security tax otherwise owed to the federal government. Payment of the deferred tax is due over two years with 50% due December 31, 2021 and the remaining half by December 31, 2022.
• Employers taking part in Paycheck Prevention Program are NOT eligible for deferment of employer payroll taxes.

A word about Employer of Record (EOR) / Statutory Payroll

As you may know, the employment structure under which “Employer-of-Record” entertainment payroll service companies and their clients operate is different from a direct, single employer structure.

In the EOR model, the production company is what’s known as the “common law employer” for hiring, wage-and-hour compliance, working conditions, safety, etc…. while the payroll company is the “statutory employer,” responsible for tax withholdings/ contributions, unemployment and workers’ comp claims. The payroll company statutory employer is known colloquially as “Employer of Record.”

Under this model, the EOR payroll company submits all employer payroll taxes (Social Security, Disability, State Unemployment and Federal Unemployment) under its own Employer Information Number (EIN). This can present an additional layer of complexity when it comes to claiming a payroll tax credit.

Current guidance from the Department of Treasury and the IRS do not address this particular case, so we do not have complete information yet. As for the PPP small business loan, we are in discussions with lenders as to what they can accept as backing documentation for payroll.

For current payroll clients: we currently have payroll reporting available which may meet your needs for some of the above programs. Please get in touch at clientservices@mediaservices.com to request.

New York’s COVID-19 Paid Leave

Empty NYC streets during COVID-19 lockdown

Separate from the federal Families First Coronavirus Response Act we wrote about last week, New York State has passed its own COVID-19 Paid Leave legislation.

The New York bill, signed by Governor Cuomo and made effective March 18, seeks to address the immediate needs of nonworking employees affected by COVID-19 who are subject to “mandatory or precautionary orders of quarantine or isolation.” The legislation differs from the federal Act mainly in that it specifically and exclusively addresses the impact of governmental quarantine orders, rather than any diagnoses or doctors’ orders.

The legislation explicitly does not apply to any employees able to work from home.

The bill also breaks employers into smaller subgroups when it comes to their obligations to employees. As opposed to the federal Act, which had the same requirements for all employers with fewer than 500 employees, the New York bill dictates the following:

Employers with 10 or fewer employees and a net income less than $1 million must provide their workers:

  • Job protection for the duration of the quarantine order
  • Guaranteed access to Paid Family Leave and disability benefits (short-term disability) for the period of quarantine – including wage replacement for their salaries up to $150,000. Here’s a link to apply for Paid Family Leave and disability benefits in New York .

Employers 10 or fewer employees and a net income greater than $1 million, in addition to ALL Employers with 11-99 employees, must provide their workers:

  • Minimum 5 days of paid sick leave
  • Job protection for the duration of the quarantine order
  • Guaranteed access to Paid Family Leave and disability benefits (short-term disability) for the period of quarantine including wage replacement for their salaries up to $150,000.

Employers with 100 or more employees, as well as all public employers (regardless of number of employees), must provide their workers:

  • Minimum 14 days of paid sick leave
  • Guaranteed job protection for the duration of the quarantine order

 
Additional Notes:

The state has issued a helpful guide for employers about NY COVID-19 Paid Sick Leave here.

Employees and employers can get more detailed information on specific situations here.

What the Families First Coronavirus Response Act (FFCRA) Means for your Production

The Families First Coronavirus Response Act was passed by Congress and signed into law by President Trump on March 18. It’s set to go into effect 15 days after signature, making the effective date April 1. It will remain in effect through the end of 2020.

Most significantly for employers and employees, the Act made temporary emergency adjustments to the Family Medical Leave Act (FMLA) and Paid Sick Leave (PSL).

Here’s a breakdown of what it’s all about. Both of these sets of emergency adjustments apply to employers with fewer than 500 employees.

Emergency FMLA Expansion

Employers with fewer than 500 employees must provide employees with the right to take up to 12 weeks of job-protected FMLA leave for specified reasons related to COVID-19 and child care.  

Emergency FMLA leave is available to care for an employee’s child under 18 years of age if (1) a school or place of care has been closed; or (2) the child care provider of such children is unavailable due to a public health emergency (defined as a COVID-19 related emergency declared by a federal, state, or local governmental authority).

How Emergency FMLA Leave works

  • Eligible employees must have been employed for at least 30 calendar days.
  • An employee is eligible for 10 days of unpaid leave (reduced from 14 days originally), but employees may choose to substitute accrued paid time off or other medical or sick leave during the unpaid period.
  • Paid leave is capped at $200 per day or $10,000 total.
  • Leave is job-protected, meaning that an employee must be returned to the same or equivalent position upon their return to work.  There are exceptions for employers with fewer than 25 employees if the employee’s job no longer exists because of the coronavirus pandemic. 
  • Paid leave is provided at a rate of 2/3 of the employee’s regular rate of pay for the number of hours regularly scheduled.
  • The Secretary of Labor may exempt small businesses with fewer than 50 employees, should compliance jeopardize the viability of the bill. 
  • Civil penalties may be imposed on employers who fail to comply and are not excluded from the definition of employer.

Emergency Paid Sick Leave

All employees, regardless of length of employment, are entitled to up to 80 hours of paid sick leave if they are unable to work (or telework) if employees are:

  1. Subject to federal, state or local quarantine or isolation order related to COVID-19;
  2. Advised by health care provider to self-quarantine related to COVID-19;
  3. Experiencing symptoms and seeking medical diagnosis for COVID-19;
  4. Caring for an individual who is subject to an order to quarantine or self-isolate or have been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  5. Caring for a son or daughter whose school or place of care has been closed, or the child care provider of such son or daughter is unavailable due to COVID-19 precautions; OR
  6. Experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

Paid Sick Leave hours based on Full-time or Part-time status

Full-time employees are eligible for up to 80 hours of paid sick leave.

Part-time employees are entitled to the number of hours of paid sick time equal to the number of hours they work, on average, for a 2-week period.

Limits on Emergency Paid Sick Leave benefits

Paid sick leave will not exceed:

  • $511 per day/$5,110 total per employee for reasons (1) to (3) above.
  • $200 per day/$2,000 total for reasons (4) to (6) above.

Emergency paid sick leave can be in addition to PSL that an employer already provides, but will not carry over from one year to the next.

Multi-Employer Bargaining Agreements

An employer signatory to a multi-employer collective bargaining agreement (CBA) may, consistent with its agreement, fulfill its obligations under the act by contributing to a multi-employer fund, plan or program. Contributions must be based on the hours of paid sick time each of its employees is entitled to under the law while working under a CBA.

Employer Tax Credits for Emergency Paid Sick Leave and Paid FMLA Leave

Employers required to pay the cost of benefits to employees under the Emergency FMLA and Emergency Paid Sick Leave Act will be eligible for tax credits offsetting the employer’s portion of Social Security taxes.  Refundable tax credits include:

  • 100% of the qualified sick leave benefits paid by employers for each calendar quarter in adherence to the Emergency Paid Sick Leave Act;
  • 100% of the qualified family leave benefits paid by employers for each calendar quarter in accordance with the Emergency FMLA.

Only employers required to offer Emergency FMLA and Emergency Paid Sick Leave may receive tax credits; voluntary offerings of additional leave do not qualify.

As the common law employer, the production company is considered the employer for the above provisions. Please consult with legal counsel should you have questions regarding how the Act applies to specific scenarios your company may be facing.

CA Expedites Leave Benefits for COVID-19

fist bump celebrating production payroll in black and white

California crew members who have lost work due to the COVID-19 outbreak can file for unemployment and/or disability, with no waiting.

Governor Gavin Newsom issued an executive order waiving the usual one-week waiting period for the benefit pay, for resident employees whose jobs have been interrupted due to coronavirus spread prevention or contraction of the COVID-19 disease itself.

File an unemployment claim or disability claim

California workers may also use Paid Family Leave or paid sick leave if they are unable to work due to caring for a sick or quarantined family member.

Any accrued sick leave can be found on the crew member’s latest payslip… they should contact production about putting in a timecard for sick leave, or submit it via their mobile timecards on the Crew Portal, if production is set up for mobile.

File a Paid Family Leave claim

If California employees contract COVID-19 during the regular course of work, they may be eligible for workers’ compensation.

Get coronavirus-specific guidance for California employers and workers here.

New York has also waived the one-week waiting period for coronavirus-related work stoppages. You can learn more about their program here.

Reminder: Media Services remains 100% operational, and we are at your service. If you have any questions or concerns, please do not hesitate to call us during regular business hours at 310 440 9600, or email us at clientservices@mediaservices.com anytime.

Media Services COVID-19 Readiness

With known cases of COVID-19 (coronavirus) in the Los Angeles and New York metropolitan areas, Media Services is taking every precaution to keep our employees and clients safe.

What we’re doing

Employees who can work from home are doing so, proactively self-quarantining to allow us to remain fully operational. We have taken additional precautions company wide for the small staff who remain on site, and are vigilantly monitoring for any illness.

Our business continuity plan includes protocols that allow one office location to securely take over for another in the event of any infection.

What you can do to help

Now more than ever, we strongly encourage you to take advantage of our complimentary digital solutions for payroll. That includes using our Client Portal to upload approved timecards and download invoices, as well as encouraging your crew and cast members to opt into Freelancer ACH Deposit in place of receiving a paper check.

Please send in payroll digitally. Eliminating messenger traffic in and out of our offices, and your own, will go a long way toward keeping everyone healthy.

Thank you for your cooperation. We remain dedicated to supporting you and your business in every way possible during this challenging time.

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