reporting everyone
paying crew on
a 1099 basis,
you can not afford
to be ignorant of
the new IRS employee
guidelines for the
film/video industry
described here.
We can protect you
from making a costly
mistake by serving
as the "paymaster"
for your crew.
click here
to return to"Production Services"
for details)
WE CAN PROTECT YOU FROM THE IRS
Independent producers, production companies, and even cameramen are finding that their freelance crew, though once-considered independent contractors, are now more likely to be classified as freelance employees under recently revised IRS employee guidelines. To make you more aware of some of the issues regarding the hiring of film/video freelancers, its potentially devastating affect on your business, and how we can protect you from the costly error of misclassifying a freelancer, we have attempted to summarize here some highlights of the new IRS guidelines and their possible implications for your business. To review the following topics, simply scroll down this page.
The following information is not to be used as legal advice, but should be used as a basis for
discussion with a qualified accountant or lawyer versed in the issues.
THE NEW IRS EMPLOYEE GUIDELINES
After reviewing the employment practices of the film/video production industry, the IRS revised their employee guidelines for the industry in 1994. Under the new guidelines, many crew positions that were previously classified as independent contractors are now classified as freelance employees - requiring the witholding of and contributing to payroll taxes. Here are some highlights of the revised I.R.S. guidelines.- A worker can be your employee for a day
- Employees are paid day rates, with separate rates for overtime
- Union crew receiving health, retirement, or other benefit contributions are employees
- Paying someone on a 1099 form doesn't mean the individual is an independent contractor.
The revised IRS guidelines also classify all job functions within the film/video industry into one
of three categories. Whether an individual in each category is a freelance employee or independent
contractor depends on a number of factors. The three categories are:
Category One workers are responsible for overall planning and implementation of the film or video production and are likely to be independent contractors (writers, producers, directors).
Category Two workers have jobs involving planning, design, or implementation of specific aspects of the production and which involve problem solving and technical skills. (i.e. cameramen/women, sound tech, scenic artist, production designer, lighting director, gaffer, and key grip.) They can be either independent contractors or employees, depending on a variety of factors.
Category Three workers are likely to be employees because they usually have little or no control of the production or significant aspects of it (camera operators, dolly grips, electrics, grips, production assistants)
The IRS determines whether an individual in each category is a freelance employee or independent
contractor using a series of "tests" which build to the conclusion that a worker is independent
and not an employee. The tests, essentially, determine if a worker has the right to direct and control
the when, where, how, and (equally as important) with what the work is to be performed. If you book
crew through a booking service, tell them when and where to report to work, and provide the equipment
(your own or rented) with which to perform the work, then the crew more likely than not meets the
IRS definition of freelance employees and not independent contractors. It is important that you
familiarize yourself with these "tests" because the ramifications of misclassifying a freelance
employee can be costly to you and your business.
WHAT'S AT STAKE:
If an employer is found in error of employee-classification guidelines, they may be required to do the following:- Retroactively pay, in addition to interest and penalties, all back taxes (employer & employee portions) for this and all other freelance employees hired. This assessment could amount to approximately 43% of the wages paid to freelancers
- Retroactively pay a benefits cost, of 30-40% of wages paid to freelancers, to cover them under the company tax-qualified benefits plan (where one exists), or lose the tax exempt status of those employee benefits being offered to full-time employees under the plan.
- Retroactively pay workmen's compensation premiums, as well as severe penalties for not having provided that employee, as required by state law, with workmen's compensation insurance.
Massachusett's workmen compensation law is particularly troublesome for employers of freelancers
for a number of reasons. First, it requires the employer (producer) to provide workmen's
compensation insurance to an individual if they are not covered elsewhere, even if they are an
independent contractor. Where most film/video freelancers, even the legitimate independent contractors,
do not insure themselves under workmen's compensation, the burden reverts back to you.
HOW YOU ARE LIKELY TO GET CAUGHT
Second, the greatest chance of exposure comes in workmen's compensation claims. That a film/video freelancer was illegally hired on a 1099 basis, comes out quite often in a personal injury claim when he or she is injured on a job. Accidents do happen - that is why the state workmen's compensation bureau has given the film/video industry one of the highest premium rates ($3.40 per $100 of payroll). If it comes out in a personal injury claim, that you illegally hired a film/video freelancer on a 1099 basis, not only will you have to retroactively pay workmen's compensation premiums, as well as severe penalties; but, you will also have to retroactively pay back taxes (employer & employee portions) for that and all other freelance employees hired, in addition to interest and penalties. This assessment could amount to approximately 43% of the wages you have paid to freelancers. For this reason, it is important to solicit certificates of insurance from all freelancers, even the independent contractors, to document that they are covered.APPLYING THE IRS INDEPENDENT CONTRACTOR TEST
The common law test for worker classification that the IRS uses is difficult to apply. To help you to begin to determine the status of the Category Two and Three workers you hire, we have established this link to a web resource with a series of questions that will determine the proper classification. Ask yourself these questions about the individual you hire in each of the crew capacities listed below. You will almost certainly find a number of freelance workers who are employees rather than independent contractors. If you are presently paying these individuals on a 1099 basis, then you are most certainly in violation of Federal and State labor laws. Though it may not have caught up to you yet, how likely is it that you can avoid an audit given IASTE 481's recently declared policy of reporting all production entities issuing 1099's to freelancers, and the IRS's policy of aggressively prosecuting payroll tax violaters.
After you have applied the test to the crew positions listed below, return to us (by pressing "back"
on the upper left of your screen) and we will explain the ramifications of hiring freelance
employees, and how we can protect you from the costly mistake of misclassifying these workers as
independent contractors.
Camera Person
Lighting Director
Gaffer
Best Person Electric
Third Electric
Generator Operator
Key Grip
Best Person Grip
Dolly Grip
Rigging Grip
Third Grip
Production Assistant
HOW TO PROTECT YOURSELF AND YOUR BUSINESS
It is easy to misclassify a freelance employee, since you can not always go by their personal assurance that they are, in fact, an independent contractor. According to the IRS guidelines, that individual must meet certain legal requirements to obtain independent contractor status. If they are willfully, or unknowingly, negligent in meeting the IRS's requirements, the burden falls on you. To avoid misclassifying a film/video freelancer, you can either:Option A) continue to use a centralized crew booking service, for crew referral and availability. But then ask a series of detailed questions, and solicit the necessary documentation, of the freelancers, to determine their proper classification. As always, you will need to book the production tools they will use from an equipment rental house - which only further establishes their employee status. When the shoot is over, you will then need to make the proper payments for employees vs. true independent contractors. For the freelance employees you hired, you must pay and do the following, in addition to paying their freelance rate:
- pay for workers compensation insurance (@ 3.5% of their wages)
- pay for unemployment insurance (@ 4.425% of their wages)
- pay health and annuity benefits where the individual is a member of a professional trade union ($36-$54/day, $70/day beginning 1/1/00)
- pay FUTA contributions (Federal Unemployment Tax Act) to fund a federal program for the unemployed (.8% of their wages)
- pay contributions to the state Disability/Unemployment Health Insurance Fund.(.58% of their wages)
- pay MA State Workforce Traning Contribution (.075% of wages)
- pay employer contributions to Social Security and Medicaid taxes (7.65% of their wages)
- withhold and file employee contributions to Social Security and Medicaid taxes (7.65% of their wages)
- provide eligibility for company tax-qualified employee benefits plan
If this seems like a lot of work - it is. Even then, you are not fully protected unless you
treat every freelancer as an employee. Another alternative is to:
Option B) hire, with just one phone call, a bonafide independent contractor, like ScreenLight & Grip. We can provide all the crew services listed above, or serve as the "employer of record" for your crew. We can also provide most of the production tools needed to accomplish the job. You get one invoice and write only one check to an incorporated business, not an individual. As the employer of record for the crew, we provide all the necessary insurance and make all the necessary payroll tax payments. But more importantly, you don't take the risk of possibly misclassifying a freelance employee as an independent contractor with devastating financial consequences.
HOW WE PROTECT YOU FROM IRS PROSECUTION
We offer you protection from IRS prosecution, because Screenlight and Grip meets the common law definition used by the IRS of an independent contractor. Unlike, some grip truck owner/operators, who are sole proprietors operating under a business name (i.e. dba's), we have been incorporated in the state of Massachusetts since 1991 as ScreenLight Productions Inc. In response to the test questions, we can answer unequivocally yes to the independent contractor qualifications:-
Yes, we have made a significant capital investment in our business.
Yes, we accept responsibility for our own expenses.
Yes, we provide the tools and/or materials needed for the job.
Yes, we assume the potential to realize profits or losses from our business.
Yes, we have worked for more than 1 firm in the past 12 months.
Yes, we make our services available to the general public.
Yes, we have the freedom to hire, supervise, and fire employees in our own name.
Yes, we have a separate place of business in which to perform the service.
When you simply tell us what you want, and allow us to serve as the employer of record
for the crew (your own or one we book), we can
also answer yes to the test questions of the employer as well.
Yes, we require the individual to perform his services at a place we designate.
Yes, we establish a specific sequence or order for that crew member to follow in the performance of the job.
Yes, we pay for their services based on time.
Yes, we provide the detailed instructions as to how the work is to be done.
Yes, we provide the crew with the training related to the performance of the function.
Yes, we require the personal service of the individual crew member in question.
Yes, we establish or maintain a continuing relationship with the individual crew member.
Yes, we require the individual crew member to follow set hours of work.
Yes, we have the right to discharge the worker at will with no liability.
OUR CLIENT CONTRACT IS ADDED PROTECTION
Finally, we can offer you added protection with our "client service agreement". Our client agreement lays out in simple legal terminology the standard expectations, controls, and results of an independent contractor/client engagement. It offers you protection, because it not only specifies copyright terms and confidentiality of client information; but, more importantly, it is a formal service contract that satisfies the IRS's requirements of a client/independent contractor engagement; and firmly establishes us as the employer of record for the crew for payroll tax purposes. Signing of the service agreement, and prepayment of the crew payroll, union benefits, and paymaster service fee are the requirements of our serving as paymaster for the crew.To review our "client service agreement" click here. (To return to this page, press the back button at the top left of your browser window when you are done.)Of course, you may not want to use our "client agreement" to contract our services - the choice is yours. Our services are not contingent upon your signing our client agreement. And, it goes without saying, that we do not have to crew your job for you to rent equipment. We are always happy to provide you with just equipment, or a grip truck - delivered to your location by a ScreenLight & Grip employee who is an experienced film technician and can serve in a number of crew capacities. You can continue to crew your shoots; and, if you like, we can simply serve as the "employer of record" for your crew with our paymaster service. Crewing is just an additional service we offer for your added protection.