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Philip Perkins

AB5 effects on freelancers

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Now that AB5 is in effect in CA, I'd like to start a thread about how sound folks will cope with the changes it will bring.  I am far from fully informed about it all, but notice that that seems to be the case all around here.  The sort of small production companies that hire freelance crew people for short jobs (1-3 days maybe) are kind of in a panic about this, since on paper it adds 15% to the cost of hiring someone like me, who has to be payrolled + W42ed as an employee if what I do is "germane to the core business of the employer), which it is since they are filmmakers.   No 1099s (they say).  There are also changes afoot with the IRS that seem to affect how much equipment+expenses we might be able to deduct from our tax liabilities if much of our income is via W2.  Any insights appreciated, especially if this all is actually that much of a change from the current "TV commercial " model of payment, where our labor is payrolled and we send in an invoice for gear rental and sound expendables only?

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I'm also curious how this will affect CA freelancers, but I don't have much direct knowledge.

Do you have any more info on the changes you mention with the IRS?  This I haven't heard about, and before I go bugging my accountant during tax season I'd like to know what I'm asking, if anything.  Thanks

 

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From CA Franchise Tax Board website:

 

ABC
Under the ABC test, a worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions:
    A.    The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the     performance of the work and in fact;
    B.    The worker performs work that is outside the usual course of the hiring entity’s business; and
    C.    The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

 

So, for now, nearly all of us are employees.  In CA there is already a lot of pushback, esp in the arts and entertainment biz, so we'll see what shakes out.

 

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33 minutes ago, Philip Perkins said:

    A.    The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the     performance of the work and in fact;
    B.    The worker performs work that is outside the usual course of the hiring entity’s business; and
    C.    The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

 

So, for now, nearly all of us are employees.  In CA there is already a lot of pushback, esp in the arts and entertainment biz, so we'll see what shakes out.

 

 

If I'm not mistaken, this was always the rules, even though some productions were trying to get away with calling crew "independent contractors".

By definition, it fails the test right off the bat. Independent contractors are the people that do construction etc. - They put in a bid on a project, if they "win"/ get the contract, they then decide how, by whom and when the jobs gets done. Tools and building materials etc. is included in the original bid.

 

We have a definite call time and are under direction of those above us in the food chain until we get dismissed (wrapped). We can't leave and come back later to finish the job, so...

 

Anyway, I actually think this whole thing is to protect us from abuse - those "producers" who try to get us to agree to an "all in" deal. Then demand 14 or 16 hours of labor + get you to "throw in" whatever gear is needed. They want to get around workers comp. insurance etc. 

The labor part of our rate should be subject to OT etc. - so, yes, we are in fact employees for the job, even if just for one day.

Also yes, the gear should be separate and 1099, since your equipment rental income  shouldn't be subject to pay FICA, Social Security etc.

 

- As always, feel free to correct me if I'm missing something.

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14 hours ago, Johnny Karlsson said:

 

If I'm not mistaken, this was always the rules, even though some productions were trying to get away with calling crew "independent contractors".

By definition, it fails the test right off the bat. Independent contractors are the people that do construction etc. - They put in a bid on a project, if they "win"/ get the contract, they then decide how, by whom and when the jobs gets done. Tools and building materials etc. is included in the original bid.

 

 

This has always been my understanding too.  The IRS has a bit different language to determine the relationship, but the intent behind it is similar to AB5:

 

https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation

 

I've also heard several people tell me about the new law making it more expensive to hire contractors because they have to pay payroll taxes.  The way I see it those payroll taxes are being paid either way.  This law just ensures that the employer is paying their half of the payroll tax, rather than the employee (contractor) paying the full 15%.  So a contractor who is concerned about it being more expensive to hire them as an employee could lower their rate by 7.65% to make it cost the company the same.  Or the other way around as many up here in Seattle do.  A lot of the freelance crew members here have our rates, and charge an additional $50 on our day rates if hired as a contractor, which roughly covers the additional payroll taxes we have to pay on behalf of the employer.  Not to mention insurance, liability, workmans comp, etc...

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Once they have to start paying for the injuries of hollywood stuntmen through workmen's comp and lawsuit liability, I think CA might revise their legal framework.

 

Personally, I prefer status as an independent contractor, running a business where you can write off your expenses like travel from home to the shoot location.

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1. Under the common law rules of the IRS Guidelines, the services provided to the Hiring Entity by the Business Service Provider are not that of an individual as a “Worker”. An IRS Form SS-8 can be filed with specific regards to the Hiring Entity if necessary but the relevant determination factors are as follows.

  1. The Worker has exclusive and complete control over what means, methods, equipment and processes are used to acquire, manipulate, record and deliver the product and provides the necessary equipment and tools.

  2. The Company provides no training, guidance or instruction.

  3. The Worker is hired per specific job, based on the professional, creative and technical abilities

    AND to provide the appropriate professional equipment. The Worker is not an operator or

    equipment rental company.

  4. There is no continuing relationship and the Worker has no expectations of future work nor

    does the Company have any obligations to engage the Worker’s services for future work.

  5. The Worker is free to accept or reject any job offered by the Company and is under no

    obligation or agreement to accept future jobs.

  6. The Worker is not required to hand in or create any reports.

  7. The Worker is paid by the job based on the Worker’s set or negotiated fee schedule which is

    based on the duration, location and specific equipment that the Worker provides as

    determined by the Worker for each specific job task to achieve the result .

  8. The Worker pays for his own overhead such as production equipment, insurance, advertising,

    office and administrative tools, communication equipment, crew vehicle, maintenance, repairs and replacement of equipment, inventory of expendables and media, online storage for deliverables, web domain and email server, etc.

  9. The Worker has exclusive control to choose what tools and equipment is owned and used to deliver the result the Company engaged the Worker’s services for each specific job.

  10. The Worker has invested in and owns and maintains the necessary production sound equipment, transport vehicle(s), administrative office equipment and utilities, storage, insurance, etc. which is required to provide the services for which the Worker is engaged by the Company. The Company does not provide any equipment for the Worker.

  11. The Company does not compensate or reimburse the Worker for expendables, supplies, maintenance, replacement, or purchase of any tools and equipment.

  12. All of the Worker’s investment is at risk and the Worker is capable of realizing a profit or suffering a loss.

  13. The Worker provides the same services to a diverse and significant client base. The Worker is not required to request permission from the Company nor is the Worker required to notify the Company. The Worker is free to provide services to any other client, at any time.

  14. The Worker is a State and Federal registered LLC with a Federal EIN. The Worker’s services are advertised and available to the general public both domestic and foreign, has name recognition and a presence in publications, online media and other public forums regarding the same services the Worker provides the Company.

2. The following criteria, in addition to those mentioned above, exempt the Business Service Provider per the business to business exemption and affirm the independent contractor classification per the Borello Test, and furthermore, the ABC Test.

  1. The Business Service Provider is a bona fide business entity providing location sound recording services.

  2. The Business Service Provider is independently established, having it’s own corporate status, insurance, business location, various licenses, tax registrations and professional association memberships as required and / or customary.

  3. The Business Service Provider provides written contracts as is customary in this field (ie. Rate Sheet with Rates Terms and Conditions, email correspondence, etc.) prior to any agreement with the Hiring Entity and providing services.

  4. The Business Service Provider customarily engages in the same type of work performed, and is engaged in the same type of work under contract with other hiring entities.

  5. The Business Service Provider advertises and holds themselves out to the public and other potential customers as available to perform the same type of work.

  6. The Business Service Provider is free to, and does, maintain clientele without restrictions or requiring approval from the Hiring Entity.

  7. The Business Service Provider provides services directly to the Hiring Entity itself, and not to the Hiring Entity’s customers.

  8. The Business Service Provider negotiates and sets its own rates, maintains a business location separate from the location of the Hiring Agency,

  9. The Business Service Provider supplies it’s own tools and equipment to perform the services, independently and without control of the Hiring Entity decides what tools, techniques and customarily and regularly exercises discretion and independent judgment in the methods and means in the performance of the services to achieve the Hiring Entity’s desired result.

  10. The Business Service Provider is free to accept or reject any future contract or request for services from the Hiring Entity, there is no expectation for future services, nor is the Hiring Entity obligated to contract to Business Services Provider in the future. The Business Service Provider is free to seek and accept work elsewhere, including though competing entities.

  11. The Business Service Provider brings specialized skills and tools that are not in the usual, direct course of the Hiring Entity’s business, but often a necessity to the broader operation.

    Employee my ass.  FU Pay Me
     

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