Editor’s Note: ProVideo Coalition connected with a producer from an award-winning independent film company to better assess the landscape and 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.
You can find a variety of articles that explore the impact of AB 5 on the entertainment industry and more will undoubtedly be published in the coming weeks and months. However, our insights about AB 5 come from the perspective of content creators that are making sense of it as both freelancers and business owners.
Our understanding of AB 5 is that it reclassifies those who were previously considered Independent Contractors into Employees of the person who utilizes their services. This means that every person who is paid for work by another person must fill out paperwork so that the appropriate taxes are withheld, which means that those who utilize Independent Contractors’ services must pay payroll tax on the amount paid to the employee and are responsible for paying what used to be the self-employment taxes that Independent contractors took care of as they filed their own tax returns at the end of the year (or quarterly).
The way to determine if someone is an employee is based on this ABC test that has been put into place. A: is the worker free from control and direction of the person hiring them in how they do their work, B: the hired person does work outside of the business of the person hiring them, and C: is the IC a business him or herself.
For people in creative fields, it can be almost impossible to meet these criteria if you are not incorporated. Because we in the film industry utilize call sheets and the producer tells people when and where to be to do the shoot, Independent Contractors don’t pass A. Because people like DPs, gaffers, grips, etc do work that the production company often also does, Contractors don’t pass B. And many Contractors were not incorporated before this year (some are doing so now, which then kicks in a different set of standards called the Borello Test- outlined below), which means they have to pay the Franchise Tax fee every year and go through the steps of being a business (city taxes, Statement of Information, etc).
While the production company does say what time and where to be to do a shoot, a crew member has the ability to say no to a job, set his or her day rate, or replace him or herself if another gig comes up. So, that ABC test gets murky for creatives.
To our knowledge, no creatives in film, theatre, dance, music have been exempted UNLESS they are incorporated. Then they must pass the Borello test. I’ll list those who are exempted, as well as the Borello test rules:
- Doctors (physicians, surgeons, dentists, podiatrists, veterinarians, psychologists)
- Professionals (lawyers, architects, engineers)
- Professional services (marketing, human resources administrator, travel agents, graphic designers, grant writers, fine artist)
- Financial services (accountants, securities broker-dealers, investment advisors)
- Insurance brokers
- Real estate agents
- Direct sales (if compensation is based on actual sales and not wholesale purchases or referrals)
- Builders and contractors
- Freelance writers and photographers (if contributes no more than 35 submissions to an outlet in a year) – most writers work on way more than this.
- Hair stylists and barbers (if licensed and if can set own rates and schedule)
- Estheticians, electrologists, and manicurists (if licensed)
- Tutors (that teach their own curriculum, and that are not public school tutors)
- Commercial fishermen
- AAA-affiliated tow truck drivers
Borello Test (if a business-to-business relationship):
- Whether the worker is engaged in an occupation or business that is distinct from that of the hiring firm
- Whether the work is part of the hiring firm’s regular business
- Whether the hiring firm or the worker supplies the equipment, tools, and the place for the person doing the work
- The worker’s financial investment in the equipment or materials required to perform the work
- The skill required in the particular occupation
- The kind of occupation—whether, in the locality, the work is usually done under the hiring firm’s direction or by a specialist without supervision
- The worker’s opportunity for profit or loss depending on his or her own managerial skill
- How long the services are to be performed
- The degree of permanence of the working relationship
- The payment method, whether by time or by the job
- Whether the parties believe they are creating an employer/employee relationship.
More exemptions could and likely will be made. The truck drivers just won a temporary ruling in a court, and journalists and translators are fighting HARD right now. Musicians are also fighting, and the Protect App-Based Drivers & Services takes that fight to another level.
Since the law went into effect on January 1, 2020, some fields have received exemptions, but the music, film, and journalism industries have not. One thing that has changed in our understanding of this is that if you are incorporated and are indeed your own business, you can work with other businesses and still maintain the contractor classification, but what we have learned for actors in particular is that while the Screen Actors Guild says that AB 5 won’t affect those actors who have loan out companies, the production company must be willing to hire the actor through their company (and file under their federal EIN). If the production company just chooses to make the actor an employee and put them on a W-2, then the actor (or filmmaker, or musician, etc) loses the ability to deduct expenses, since the tax law has done away with that for W-2 employees. So, it comes down to the hiring entity to decide, and we are hearing that studios may just hire everyone as employees, which would harm creatives who spend a lot out of pocket on their careers – for actors, acting classes, headshots, commissions to representatives, etc.
There’s go guarantee that anything is going to change, and even if it does, it’s impossible to say when it will happen. When in doubt, talk to your accountant or if you have an attorney, talk to them. We have been in communication with our accountant about all of this, and she recommended a payroll company for us so that we can comply.
Beyond that our advice is to stay informed and incorporate. Take part in the social media discussions that are happening, and consider incorporating yourself, as it will make freelance professionals more hirable as long as AB 5 is in effect. Yes, it costs you money to do so, but you have to weigh if the money spent to be a legitimate business is less than the work you might otherwise lose.