My name is Gordon Firemark. I'm an entertainment attorney based in Los Angeles. Over the past few months, I have had several conversations with clients about whether the folks they hire to work on their films and theatre projects are appropriately classified as employees or independent contractors. An important distinction can have costly consequences if not handled properly.
Please note. This entertainment business article is general information and is not legal advice. Speak to a qualified professional before making legal, tax, or other business decisions.
On January 1, 2012, California's law changed to create significant penalties for employers who willfully misclassify workers, fail to withhold taxes, and pay into the Worker Compensation system. The law imposes strict penalties for misclassifying employees as independent contractors.
Do You Hire An Independent Contractor Or Employee (For Your Film)
In the entertainment industry, this misclassification is prevalent. Producers who wish to avoid the hassle or the cost of a payroll company, pay minimum wage, overtime, or comply with other compensation and hour laws often prefer to treat their workers as independent contractors. The Federal government, mainly through the IRS, has taken this situation seriously in recent years and aggressively pursued violators.
California joins the cause.
California has taken similar measures. Under the law, which doesn't change the criteria, but only the consequences, penalties range from $5,000 to $15,000 per violation for isolated violations, where a pattern or practice of a breach exists, as much as $25,000 per violation.
How to classify your workers
Particularly in entertainment, workers may sometimes look like employees and sometimes like contractors. It's often difficult to determine which classification to use.
The IRS view is that most crew members, actors, and others working on a film production should be classified as employees, not independent contractors, and that taxes should thus be withheld.
Where a loan-out company is involved, it, rather than the producer, is the employee, so no withholding is required of the producer. Also, suppose the person is being hired for their services and to bring equipment, supplies, or intellectual property rights to the party. In that case, the relationship can probably be characterized as one of an independent contractor. But, merely declaring in a contract that the parties are independent contractors will do little to persuade the authorities that this is the case.
the “Control” test
To determine whether a worker is an independent contractor, the law uses a so-called “control” test. This test looks at several factors to evaluate whether an employer has the right to control how workers perform their services.
Factors considered in determining employee vs. independent contractor status
Under the “control test,” we must look at the specific facts in each case and then at a series of factors and economic realities. Specifically, the Courts will look at the following:
- Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
- Whether or not the work is a part of the regular business of the principal;
- Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
- The alleged employee's investment in the equipment or materials required by his task;
- The skill needed for the particular occupation;
- The kind of occupation, concerning whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
- The alleged employee's opportunity for profit or loss depending on his managerial skill;
- The length of time for which the services are to be performed;
- The degree of permanence of the working relationship;
- The method of payment, whether by time or by the job;
- Whether or not the parties believe they are creating an employer-employee relationship.
In applying this analysis, the burden of proof is on the employer. Absent evidence sufficient to prove an independent contractor relationship, the presumption is that the worker is an employee. Producers beware. Failure to classify an employee adequately can prove costly, so contact an attorney and ask if you have any doubts.
If you like this, you might benefit from these filmmaker contract templates.
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Gordon Firemark began his career working behind the scenes in film, television, and theatre. Since finishing law school, that's still what he does. As an attorney devoted to representing clients in film, television, and theatre, he helps producers, directors, writers, actors, and other industry professionals make deals that make sense and get their productions developed, financed, produced, and distributed.
