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I get what #AB5, the CA law to make independent contractors into employees, is going for. The state claims it was done to protect gig-economy workers like the ones that drive for Uber and Lyft, and some of those people want and need that protection. Unfortunately, for those of us working as creative professionals at any level except the very top, the consequences of AB 5 have been as stark as they are negative. Let me give you an example of what that looks like…and how much it’s literally going to cost this entire industry.
Not long after AB 5 became official, I opened my budgeting software and used a $100k budget to play around with the two scenarios: the first, with every crewmember as an Independent Contractor, the second with them as employees. It was a $28,000 difference in the budget because of payroll tax and payroll company fees.
The worst part is that it’s not like that money is going into my crewmembers pocket. If I hire a gaffer for a two-day gig, I now have to go through a payroll company to make him an employee, pay the extra money to the payroll company and for the payroll tax, and am responsible for withholding the taxes that hiring entities are responsible for when they have employees (Social Security, Medicare, Federal Unemployment Tax, State Income Tax, etc), which means less money in the contractor’s pocket. Then the job is over, and I may not work with that gaffer again for months. So then I either have to keep him on payroll all that time (usually payroll companies charge a fee for each employee per month), or I have to terminate him with my payroll company and rehire when we have another gig.
Ultimately, compliance costs business owners more money and takes money out of creatives’ pockets by costing them work and/or taking away their ability to deduct expenses. People in creative fields, like music, filmmaking, writing, and acting are having to either pay the $800 to incorporate (plus the expenses to register with the state, the cost of an accountant to do corporate AND personal taxes, etc). This is a very sweeping law that is cutting creative fields off at the knees.
Freelancer Frustration
While it’s true that many in the film industry are already classified as employees, these workers are often union workers. AB5 will hurt those who are starting out or not quite able/ready to join unions yet. Below-the-line crew have to rack up enough days on projects before they are eligible to join. If they cannot be paid as independent contractors, low-budget indie content creators may offer lower day rates and/or fewer days on set (relying more often on skeleton crews). This means less work for the crewmembers. It means fewer days that a producer allows for those considered non-essential because now they have to make their budget numbers work to include the payroll taxes and fees collected by the payroll company.
For those employees who really do only work for one hiring entity and have a fulltime job, if they are being misclassified, AB 5 helps. That’s typically not how it works in the creative fields if you aren’t on a studio project though. You do the gig from anywhere between 1 and 30 days, then the project ends and you get hired by someone else for a new project. Anyone who works for more than one hiring entity in a given year will feel the effect of this because the hiring entities that used to pay Independent Contractors are having to comply, and this costs more (the beneficiary is the state, not the newly classified employee)
Many of my freelance indie film friends are terrified that work is going to be even harder to procure. We work sometimes two to five days for a production in a given year; and if a better job comes up for a better rate, it is understood we might take it. There is flexibility, which is necessary for the project-by-project nature of the job. We do not work for the same company for long periods, as is the nature of the industry unless you are on a bigger budget feature that shoots more than 30 days, or a series that offers regular work for many weeks out of the year.
Small content creators – who are trying to pay our colleagues as we strive to make work that will allow us to work on bigger budget films and shows – are going to suffer, and the crew we would typically hire will get fewer days and less money in order for us to comply with employee classifications. As a creator, I aim to pay crew a fair wage, but with the added costs, I’ll have to work through the budget to see what I can do without or who will work for less. And as a freelancer, that frustrates me.
We already stretch every cent trying to create good work that will get us better-paying jobs, union membership, representation, etc. This will tighten the true indie film market significantly by forcing low-budget productions to pay more in taxes while the crewmembers get less.
Who is Really Benefiting from AB 5?
As a producer, I already hold liability and workmens comp insurance for my entire cast and crew (per SAG’s rules), so their safety is protected. This law is about giving them more protection in terms of unemployment, paid time off, healthcare, etc. But most creatives I know don’t work enough hours with the same hiring entity to qualify for benefits anyway, so it doesn’t do the things it was designed to do.
AB 5 has swept the indie film crew and creators under a general rule that should apply to those who do regular work for one company and are thus misclassified. For those of us who hop from one low-budget project to the next to build resumes, make professional connections, & improve our skills while earning money for our contributions to a project, this seems to unfairly put a burden on us that may cause low budget indies to move elsewhere or not be made, thereby hurting our ability to earn. In an industry that doesn’t exactly fund work in niche genres or by minority groups in overwhelming numbers we have to do it ourselves, and we have been. Now it will just cost us that much more which will ultimately mean less work. People are already losing work because hiring entities can’t afford to comply.
Some production companies are now asking if you are incorporated before hiring you, as it saves them on payroll tax (since it becomes a business to business relationship). This is the biggest issue – it will cost hiring entities more money – approximate 25 to 30% more to make ICs into employees. And for an industry like film, this seems crazy to me.
I have also seen people doing GoFundMe campaigns to raise the money to incorporate so they don’t lose work! That is INSANE that they have to do that.
What Now?
We are all going to have to budget in the extra costs for payroll tax and services but we may lose bids to out-of-state companies if the client wants to save money. There’s not much we can do about those numbers though, and if you don’t comply, it can cost you dearly. If hiring entities don’t comply, they can be fined massively for each misclassified worker.
The number of professions clamoring for exemptions (including, ironically, Uber & Lyft) indicates that the wording of AB5 is too sweeping and will hurt many who have functioned successfully and willfully as independent contractors for years. They aren’t being reclassified, so to me that means they aren’t really complying while us little guys feel it in the pocketbook immediately.
Overall, AB 5 will push work out of the state or create less demand in certain fields. I could foresee indie filmmakers cutting some positions in order to save the money that they now have to pay in payroll taxes. Some productions are moving out of state, or if they are already out of state, are not hiring CA Contractors. We’ll likely see more skeleton crews (and less work) as a result.
Given the pushback we’ve seen from individuals all the way up to efforts like the Protect App-Based Drivers & Services, we’ll likely see some changes to AB 5, but it’s impossible so say when they’ll happen, or what will change. In the meantime, stay informed about what’s happening and join in the conversation about AB 5 to ensure that people like Governor Gavin Newsome and Assemblywoman Lorena Gonzalez hear and understand how the people who make up the vast majority of the entertainment industry are truly being affected.
Editor’s Note: ProVideo Coalition connected with a producer from an award-winning independent film company to better assess the landscape an offer an opinion about California Assembly Bill 5, better known as AB 5. Due to the sensitive nature of this topic and the ramifications of speaking out against it, we’re withholding their identity.
Please get in touch with PVC on Twitter or via email if you’d like to share your AB 5 thoughts or experiences.