As we mentioned back in April, the California Supreme Court has weighed in on what makes a worker an independent contractor rather than an employee. As it turns out, the qualifications are rigorous. While the studios have long known that their production crew members don’t qualify as independent contractors (which would theoretically free the employer from payroll taxes, workers’ compensation and unemployment liabilities), some independent producers still operate under the mistaken idea that they do.
What’s the difference between independent contractors and employees, anyway?
Can someone really be an employee if they only work for one day? Certainly. An employee is someone who performs work at the direction of a person or entity, for pay. When that happens, the government wants the employee to have a safety net in case of injury, layoff, retirement and in some cases, sick time. Equally important is that the government gets paid its share of the employee’s wages in the form of income tax; as well as contributions to cover unemployment, disability and retirement (Social Security) benefits via employer payroll taxes.
It’s that last bit (employer payroll taxes) that inspires many an otherwise-upstanding production company to engage in inadvertent tax evasion by claiming that its crewmembers are actually independent contractors (1099) rather than employees (who get a W2). But while the bar was already high for qualifying a worker as an independent contractor, the California Supreme Court raised it further (or maybe just clarified it with straightforward scenarios). The court followed similar clarifications in Massachusetts and New Jersey, by spelling out three concrete requirements for an independent contractor classification.
According to the ruling, the worker must:
- be free from the control and direction of the employer (can’t be compelled to show up for certain hours and do specific tasks – kinda like a film crew does)
- perform work that is outside the hirer’s core business (like when a plumber fixes a leak at a retail electronics store… that plumber could legit be considered a contractor. A crewmember working on a movie, for a company that makes movies, doesn’t pass the test)
- customarily engage in “an independently established trade, occupation or business.” (this is the one that throws people… but if you think about the plumber example above, the plumber probably has storefront, signage, advertising, a website, a truck with equipment… things your average P.A. will not have)
It’s important to note that the burden of classification falls completely on the business, and not on the worker. Even if the worker expressly states in writing that they consider themselves a contractor and want to be paid as a contractor, it’s the would-be employer that will suffer the consequences in penalties and lawsuit payouts.
The burden of classification falls completely on the business, and not on the worker.
You may ask: if the worker wants to be paid as a contractor, and that’s how I pay them, why would they then report the misclassification? Isn’t everyone happy as a clam?
Top two ways production companies get busted for misclassifying employees as independent contractors:
- Crewmember gets hurt.
In addition to evading payroll taxes, productions also misclassify their crew as contractors to get avoid paying workers’ compensation premiums. This is an enormous liability for both the production company and its owner(s). All it takes is a twisted ankle on set to put a crewmember out of commission. They can then come after you not only for the doctor bills, but also lost pay as a result of not being able to work – whether on your production or another job. Many a production has been exposed as misclassifying crewmembers based on one simple claim. If the accident is worse, and your workers’ compensation policy doesn’t cover “independent contractors” – and it most likely doesn’t – you could be on the hook for significant sums of money in damages.
- Crewmember files for Unemployment.
Many productions are surprised, halfway through the shoot, to find a day player from week 1 has filed an Unemployment claim against the company. When the company tries to argue that the person was not an employee, but an independent contractor, it opens itself up to greater scrutiny of the entire crew – with all the overtime back pay, payroll taxes and penalties that go along with it.
So how do you pay your production crew the right way?
The best way to meet all your obligations as an employer is to classify your crewmembers properly as employees, and engage the services of a reputable statutory (employer-of-record) payroll provider. When you work with Media Services to pay your crew and castmembers, we not only apply the proper withholding, submit payroll taxes on your behalf and provide workers’ compensation coverage… we also file all W2s and send them to your workers at the beginning of the next year. Since the unemployment and workers’ compensation are under our company, we also resolve and pay out any claims, some of which go on for years or even decades.
Want to learn more about payroll services for your next production? Get in touch with us here, and we’ll get you all the information you need about rates and how the system works.