Entertainment Payroll 101
How does entertainment payroll work?
When you have a production - whether an event, film, commercial, etc, you need to pay people for their services.
People who pay others for their services, are “employers” and need to comply with state and federal laws. And if the labor is unionized, you need to comply with union rules. This all applies whether you pay someone for an hour of work or you pay hundreds of people for months of work.
Companies like Wrapbook specialize in entertainment payroll–making it easy to spin up a project, pay talent and crew for their services, and even automate compliance, payments, and insurance processes.
What do entertainment payroll companies do?
An entertainment payroll company acts on behalf of its clients in five major functions:
1. Serves as an Employer of Record
When tax season comes around, each production’s talent and crew will need W2s, 1099s, and other tax forms. As an employer of record, Wrapbook acts on behalf of the producer, collecting and sending out these forms.
2. Provides Workers’ Compensation
Regardless of your production size, workers’ compensation is required in case of onset injury. Not only is it illegal not to have– without it, you’re opening your production to potential lawsuits.
3. Onboards Cast & Crew
With each new hire on a production comes a host of paperwork and information. Entertainment payroll companies, like Wrapbook, ensure the proper information is collected so it can pay your production in compliance with unions, loan out companies, and more.
4. Calculates Payroll
Whether done manually by accountants or automatically in Wrapbook’s software, film payroll companies calculate payroll and union benefits–observing federal and state labor laws, and union contracts.
5. Processes Payments
Understanding a production’s nuances, entertainment payroll companies pay everyone out – securely transmitting funds to unions, employees, and state and federal withholding agencies.
What is unique about entertainment payroll compliance?
Behind the cloud of movie magic, production and entertainment companies are still businesses, and have to operate under the same laws. There are a few points that commonly frustrate producers:
In the eyes of the law, entertainment companies are treated as an employer, and thus need to follow federal state and local employers compliance rules.
The vast majority of workers in entertainment have been defined by the IRS as employees and not as contractors – even if the worker has worked just a single hour. This means that employee hiring laws, as well as, workers’ compensation must be supplied for all workers of a company.
Because of this, every production company must onboard each new hire in the same manner they would for a long term employee, requiring companies to collect from each worker: W-4 tax withholding information, an I-9 verifying eligibility to work in the United States, and a W-9 attesting to tax identification information. These documents must be retained for a minimum of 5 years.
4. Union Contracts
Entertainment companies frequently hire workers from entertainment unions, including SAG-AFTRA, DGA, WGA, IATSE, and Teamsters. Each guild has unique requirements for hiring its members, requiring you to become a signatory long before you can make a hire. Once hired, wages must be calculated according to the specific union wage rules., including minimum pay by day and by week, overtime rate, per diems, and pension and health rate.
Wrapbook assist with compliance rules, the onboarding of employees and the calculation of wages according to union contracts for you.
What are employer payroll taxes?
Both employers (production companies) and employees are required to pay taxes to the government. Employers pay taxes on two things: 1) when payroll is processed and 2) gross profits made year to year.
Employer payroll taxes are the additional amounts that a company needs to withhold from agencies each time they run payroll.
What are employee payroll taxes?
Each year, employees are required to pay income tax to the government. These taxes include social security, medicare, federal income tax, state income tax, and local income taxes.
Since it can be hard to plan exactly how much an employee will need to pay in income tax, employers are required to take out an estimate of the amount that an employee will need to pay & send it to appropriate agencies on each pay cycle.
Employers need to report on an annual basis how much of these funds were withheld, reporting it to the employee on each paystub and again on their annual W-2.
The amount that an employee needs to pay depends on several factors – including family situation, their number of dependents, and the anticipated amount of income in a given year. They report each of these factors on their W-4s each time they are hired, so that employers can calculate how much to withhold from their paycheck.
Wrapbook calculates and withholds taxes for employees each pay cycle & provides each employee with a W-2 to download each year.
What are “fringes”?
Fringes are an umbrella term used to designate additional payments, required for paying a worker. Fringes include workers compensation insurance, social security tax, medicare tax, federal unemployment tax, state unemployment tax, any additional local taxes, along with union pension and health.
Each worker’s fringe rate slightly differs, according to union membership and the state that you’re shooting in. Overall, you can usually assume that non-union fringes will be approximately 18–22% of the gross wages. However, a precise breakdown of how much you can expect to pay for fringes can be found using the payroll budgeting tool.
A Fringe Example
Let’s say you’re shooting a short in California. It’s non-union, and your gross wages (what you’re paying your talent and crew) is $10,000.
For this amount, you would also need to pay an additional $1848 (18.5%) in fringes.
The fringes break down as such:
- Gross Wages - $10,000
- Workers Compensation Insurance - $403.00
- Social Security Tax - $620.00
- Medicare Tax - $145.00
- Federal Unemployment Tax - $60.00
- State Unemployment Tax - $620.00
- Total Payroll - $11,848
How do I budget for union fringes?
Each union requires signatory companies to pay an additional amount for pension and health of its members. While this may seem like a “hidden” cost, consider that in the United States, most employers are required to provide some contribution for their employees’ medical coverage.
The amount you’ll have to contribute differs by union, as well as, the job that a person will perform on the production.
For example, SAG-AFTRA sets its fringes as 18.5% for principal actors and 18.0% for background actors on theatrical productions. So for a SAG actor being paid $10,000 in California, you would need to pay an additional $1,800 - $1850 in pension and health to the union. Or let Wrapbook calculate these payments for you.
Other unions, like the DGA and IATSE, negotiate pension and health with each production company. To get an estimate of how much you’ll pay in fringe rates for them, you need to contact their guilds.
How do taxes differ between contractors and employees?
Contractors, in the eyes of the IRS, are treated as a business being paid by another business. This means that no taxes are taken out of wages & no employer taxes are paid each pay cycle. Contractors are merely provided a 1099 on an annual basis from the employer, designating how much was paid to the other “business”.
The contractor then becomes responsible for paying taxes and demonstrating their own expenses on each project to the government. In effect, contractors pay themselves, which in the eyes of the IRS make them an employer – holding them responsible for the social security and medicare tax an employer normally pays. This means that contractors pay both the 7.45% for employees and 7.45% that employers pay, making this a total of 14.9% in taxes to FUTA (social security + medicare).
In general, from a pure financial position, it’s a worse for a contractor to be paid as a contractor than as an employee. It’s also a greater burden to document all expenses to ensure that you only pay taxes on income, and not expenses.
What are the minimum wage and overtime rules?
Minimum wage and overtime laws are dictated by a worker’s state, locality, and union. Be sure to look these up for each location you are working in.
How do expenses work in entertainment payroll?
On any job, it’s common for employees to have expenses related to work. Expenses can include: cab rides, meals, plane tickets, and gear rentals. It’s the job of the employer to reimburse them for any that they incurred.
In Wrapbook, employees can submit all expenses incurred, documenting each expense with a receipt for you to review and approve. Once approved, each expense appears as an item for an employer to pay alongside regular payroll. Receipts are required for any expense over $75.
No taxes are paid on any expense.
What is a loan-out corporation?
A loan-out corporation is a company, created by an individual for the purpose of being paid by another business. Loan out corporations are common for production personnel and can be operated by a business manager of a talent.
When an individual has a loan-out corporation, they are then an “employee” of their own corporation and they “loan out” their employees to other employers. Hiring a loan out corporation (vs a traditional corporation) can save a production company money since they do not then need to pay payroll tax for that individual.
Payments to loan-out corporations are supported in Wrapbook. A user just needs to specify that they prefer to get paid via their loan-out corporation when onboarding to Wrapbook for the first time.