Payroll FAQs
We are sharing answers to some of the most frequently asked questions that we get from producers. These include questions about who needs to be payrolled, employment relationships, and the costs of payroll. Scroll through all of our FAQs or use the links below to jump to a specific topic.
If you have a question that is not answered here, please reach out to us at admin@ootbsolutions.com
Who needs to be payrolled?
Payroll on set can be complicated, but OOTB can help make recommendations that will keep your workforce compliant while also staying within your budget.
Employment and labor laws are constantly changing. Many states are evolving their laws to better protect workers and provide them with the rights and benefits of employees, such as meal breaks, workers’ compensation and disability insurance, unemployment, FICA contributions, and overtime pay. Although the production industry has often paid crew and talent as independent contractors to avoid the additional costs of paying workers as employees, misclassifying workers exposes an employer to serious legal and financial penalties.
Please reach out to your OOTB Account Manager if you have any questions that are not answered here.
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AB5 codified and expanded the scope of the "ABC Test," which was established by the California Supreme Court in the 2018 Dynamex ruling. A worker can only be classified as an independent contractor if they meet all three conditions of the ABC Test. If they fail to meet even one of these conditions, they must be classified as an employee.
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Under the ABC test, a worker must meet all three of the following conditions to be classified as an independent contractor:
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.
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.
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The IRS states that, "a worker is an employee when the business has the right to direct and control the worker." Even if a business gives a worker freedom of action, having the right to direct and control the worker is what determines classification.
Examples of control and direction include:
Determining when and where work is performed.
Specifying which tools and equipment to use.
Determining what order or sequence to follow when performing the work.
Dictating that a worker cannot delegate and manage the work performed without the approval of the business.
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The B of the ABC Test requires independent contractors to perform work that is outside the usual nature of the hiring entity's work. If a worker is hired to assist in a primary business activity, it is unlikely that the worker can be considered an independent contractor. A primary business activity is something that the hiring entity typically does in the usual course of business.
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The C of the ABC Test requires the worker to operate a valid and established business of the same nature as the work they are performing as a contingent worker. This business must act and operate as a business.
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It is important to note that both federal and state employment laws classify a worker as an employee unless proven otherwise. The U.S. Department of Labor and many states, including California, use the ABC Test (for more information about the ABC Test, refer to “What is AB5?”) to determine worker classification. The IRS and other states, including New York, use common law rules to make these determinations.
Producers should be aware that having a written contract that designates a worker as an independent contractor is not a factor in determining the worker’s status.
The duration of work also has no bearing on classification. If a worker should be an employee, it does not matter if they only work a one-day shoot once a year. They are still an employee.
The IRS only considers the relationship between the parties working together to determine classification.
The engaging entity has sole responsibility for classification of a worker. If a worker is misclassified as independent contractors, they can be liable for employment taxes, fines, and penalties.
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Potential audits from government entities, such as the CA EDD.
Workers who are injured on set are not covered by workers’ compensation. The workers’ compensation system in California is a “no fault system.” This means that if an employer is uninsured, and an employee is injured in the course and scope of employment, the employer is 100% liable for their injuries. It is irrelevant whether the employer took precautions or if the employee could be at fault. Potential penalties for not complying include fines and legal fees, as well as the cost of covering employee medical bills for injuries incurred in the workplace.
Wage and hour lawsuits. If a worker files a lawsuit for misclassification, the results can be devastating. The worker could claim that they should have been classified as an employee and been provided with meal breaks, rest breaks, overtime, sick leave, reimbursements for expenses, pay stubs, etc. Courts will assess damages for:
Unpaid overtime wages where proof of hours worked is not available
Meal and rest break penalties where proof of compliance is not available.
Waiting time penalties for missed or inaccurate pay stubs - CA Labor Code 210
Class Action Lawsuits / PAGA (Private Attorney General Act) suits. Plaintiff attorneys will often bring misclassification cases as a class action on behalf of other workers and the State of California. This could cause damages to compound exponentially. The cost to defend, and potentially settle, misclassification claims for hundreds of workers can be staggering. Courts generally allow at least the prior three years of exposure to be included in the suit. Employment practices liability insurance (EPLI) does not cover wage and hour claims without the purchase of additional expensive coverage riders. A more detailed explanation of the financial liability associated with misclassifying just one employee is explained in this article.
Employment Relationships
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An employer of record is the entity or organization responsible for complying with all state and federal requirements pertaining to the relationship between an employee and employer. These responsibilities begin with paying the employee, but also include the management of payroll taxes, employee benefits, insurance, state and federal labor law compliance, and HR responsibilities. The entity that manages and benefits from the labor of the employee is not required to be the employer of record, so long as another entity assumes the employer of record responsibilities. In this case, a “co-employment relationship” exists between the employer of record and the entity that manages and benefits from the labor of the employee.
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A co-employment relationship is a predetermined and contractual relationship between two or more parties that have mutual but varying legal responsibilities for an employee.
OOTB Solutions clients benefit from the labor and talents of individuals who they select to perform work as designated W-2 personnel, while the employer of record responsibilities are managed by OOTB.
The client still maintains legal and practical liability for their actions related to the employment relationship. Among other things, this includes providing a safe working environment and complying with state and federal workplace laws.
Payroll Costs
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Production payroll includes many unique intricacies that standard payroll companies are not equipped to handle.
These include:
10-hour & 12-hour work days
Industry standard overtime rates
Travel time and prep days
6th & 7th day overtime
Your OOTB Solutions team works closely with you to navigate and understand these details before your production starts to ensure that you are in compliance with labor laws and that employees are paid correctly.
With the detailed information provided by our team, you will have the knowledge you need to optimize your production schedule to best avoid additional costs to your budget.
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Employment taxes include all taxes employers must pay if they have employees.
Payroll taxes are the Social Security and Medicare taxes that are withheld from employee pay and matched by employers.
Taxes paid by the employer are an additional cost on top of employee wages. They are not deducted from employee pay. Taxes paid by the employee must be withheld from their gross pay by the employer and transmitted to the appropriate tax agencies.
Taxes paid by both employers and employees:
Social Security and Medicare taxes (Federal Insurance Contribution Act, or FICA taxes). Split equally by employer and employee.
Taxes paid by employer:
Federal unemployment taxes (Federal Unemployment Tax Act, or FUTA)
State unemployment taxes (state unemployment insurance, or SUI)
Applicable local taxes
Taxes paid by employee:
Federal income tax
State income tax
Applicable local taxes
Additional Medicare tax (if individual income exceeds the threshold amount)
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An additional policy is not needed when personnel are established as W-2 employees of OOTB Solutions. The workers’ compensation policy maintained by OOTB provides coverage for all personnel who employed by OOTB as W-2 employees. W-2 employment status must be established prior to any work being conducted. Our formal W-2 onboarding process is a primary step in documenting the W-2 relationship.
Any individual who is not engaged as a payrolled employee is not covered by, nor provided the benefits of, OOTB’s workers’ compensation policy.
Independent contractors are not covered by the OOTB policy. Independent contractors must maintain their own general liability and workers’ compensation policies for applicable coverages to be in force.