The Art of Film Funding
Discover the secrets to funding and creating successful indie films with The Art of Film Funding Podcast. Join Carole Dean, President of From the Heart Productions and author of The Art of Film Funding, and Heather Lenz, director of the award-winning documentary Kusama-Infinity, as they chat with top film industry pros. Get practical insider tips on crowdfunding, pitching, saving on budgets, marketing, hybrid distribution, and the latest in A.I. filmmaking. Whether you’re funding your first project or navigating new trends, this podcast has everything you need to succeed. Subscribe and let’s get your film funded!
The Art of Film Funding
Assembly Bill 5 (AB5) Redefines an Independent Contractor Starting 1/1/2020
Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.
Love Hope Radio.
SPEAKER_04Hi, and welcome to the Art of Film Funding. I'm your co-host, Claire Papan. Along with Carol Dean, author of the best-selling book, The Art of Film Funding, Carol is also the founder and president of From the Heart Productions and the host of this show. Mark Litwock is a veteran entertainment attorney and founder of the law offices of Mark Litwock, an associate based in Los Angeles. His practice includes work in the areas of copyright, trademark, contract, multimedia law, intellectual property, and book publishing. As a producer's representative, he assists filmmakers in arranging financing, marketing, and distribution of their films. He also testifies as an expert witness in motion picture industry cases. Mark has packaged movie projects and served as executive producer on many feature films. He has provided legal services or worked as a producer rep on more than 200 feature films. He is a production counsel for numerous television and new media series, including several Netflix series. He's the author of six books that are all important for filmmakers. And Mark has been a donor to the Roy Dean Film Grant for many years, right, Carol?
SPEAKER_03Yes. Mark is always supporting filmmakers with seminars. And Claire, his books are invaluable to the film industry. And we sincerely thank you, Mark, for joining us.
SPEAKER_02Oh, you're very welcome.
SPEAKER_03So we want uh you to help us understand the recently enacted Assembly Bill 5, which changes how non-union filmmakers must classify caste and crew as employees. The new law, as of January 1st in 2020, is California's AB5, Assembly Bill 5. It restricts the hiring of employees on a 1099. Employers are now required to use what is called the ABC test to determine if an employee can be classified as an independent contractor. So can you give us an overview of the new law, please?
SPEAKER_02Uh sure. And this new law uh doesn't apply just to non-union productions, it also applies to union productions, but most union productions already hire most people as employees, so it uh it probably will have minimal impact on on them. Um so the the California legislature passed this law to codify um the principles of a recent 2018 court decision that's referred to as the Dynamax case, in which the Supreme Court revised a prior test called Borello for determining which workers are considered employees and which should be considered independent contractors. And the reason for this new law being passed by the legislature was to stop some label practices that were considered abusive, namely companies in the gig economy like Uber and Lyft who would hire drivers as independent contractors, deny them benefits that employees have, such as a minimum wage, overtime, breast breaks, and uh in addition, uh employees compared to independent contractors have the right to form a union. Um and and um these are uh certain benefits that independent contractors don't have. Um independent contractors uh must pay all uh Social Security and Medicare costs and are not eligible for unemployment insurance. Um and consequently, Uber and and other gig economies uh companies prefer to hire people as independent contractors because, frankly, it's just cheaper for them. Um also they don't have to pay for health care or s or sick leave because they're independent contractors, they're not employees. So all the rules and protections that apply to employees don't apply if you hire someone as an independent contractor, assuming that you properly classify them as an independent contractor, and that's where there's a lot of controversy because it's often difficult to distinguish who should be an employee and who should be an independent contractor. So Uber argued that its drivers were independent contractors because they could set their own hours and work whenever they wanted. Some of the drivers, on the other hand, argued that they should be considered employees because Uber tightly controls how they do their job. Uber and other gig companies uh are fighting the law, by the way, and they they will mount a ballot initiative in November 2020 uh to exempt rightsharing from this law, and$110 million has reportedly been raised to finance that ballot initiative. But that ballot initiative is not going to do anything for filmmakers, it's it's just for Uber Lyft and and you know those companies. So because the law is being contested and maybe to some extent overturned, it's too early to predict the ultimate uh outcome. Uh the California Trucking Association says the the law is unconstitutional and is pre preempted by the FAA, uh, which present prevents states from enforcing laws or regulations, um and uh we'll we'll see what happens. But basically AB5, the new law that's been passed, creates an assumption for employers to consider all workers as employees, unless the employer employer can prove the worker's role is an independent contractor according to the state's new criteria. Okay, so it it puts basically a presumption uh uh a burden on the employer. So over the years the the law in this area has been changing. There was there was actually a bill in 2012 which created penalties for employers who willfully misclassified workers as independent contractors. This this uh dispute, this controversy about who should be an independent contractor and who should be employ an employer is not by any means new. Um and and most independent filmmakers, if they wanted to play it safe, would hire a payroll company and pay most, if not everyone, as an employee to avoid any potential uh penalties. So the the prior law was uh uh SB 459, which was signed by Governor Brown, um, and uh it it enhanced it that law enhanced the penalty for employers who misclassify personnel. Penalties range from 5,000 to 15,000 per violation. Uh where there was a pattern or practice of violations, the penalty could increase from 10,000 to 25,000 per violation. So the penalties can can be, you know, substantial. That being said, my guess is there's an awful lot of independent filmmakers who misclassified people they hired and it never never surfaced or came to light. So the new law, AP5, basically restates the principles of the Dynamax court decision and it expands it, but also adds some exceptions. So in some ways the new law is less harsh than the court decision, in other ways it expands it. Um but the exceptions that are in the law that the legislature passed are not designed to affect the movie industry. So so maybe uh uh let me just take a step back and say that there's there's two types of law. There there is um statutory law, which is laws passed by the legislature, you know, a state legislature or Congress, um, and um the other type of law is what's called case law or judge-made law or the law of precedent. And this is this is the law that's found in various decisions of judges. And when a case is determined and appealed, the appellate court determines questions of law, such as how a statutory law is to be applied or what it means or be interpreted. And this creates a precedent at which other lower courts are obligated to follow or distinguish. Um so the Dynamax Court made a decision, and as a response, the California legislature enacted AB5, which affirms much of that decision, but also clarifies some matters and creates a few exemptions. Now, let's let's talk a little bit about what the difference is between an independent contractor and an employee, and why does the government even care how the person is classified? And the reason is taxes. Uh the government taxes independent contractors differently from employees, with employees a certain portion of their wages are withheld to pay taxes and Social Security. With an independent contractor, the contractor receives a check for the full amount, and the contractor has to remit, you know, his or her portion that's owed to the government in the form of taxes. So the government is more likely to receive taxes if they were automatically taken out of an employee's paycheck than if the gross amount is paid to an independent contractor, and then the independent contractor has to remit the taxes to the government. Um and that's why you know the IRS takes the position that for most people working on film production, they should be classified as employees, not independent contractor. Um they obviously want taxes withhold, withheld. If the em i if the person is being employed through a loan-out company, then the loan-out company will withhold taxes, and this should not pose a problem for the producer. Uh moreover, if the person is being hired not just for their time, but but also equipment is being supplied, it is more likely to pass muster as an independent contractor. But simply calling a person you hire an independent contractor or using an uh independent contractor form of contract does not by itself give you much protection. So in determining whether or not an individual is providing service uh as an independent contractor or an employee, uh it can be basically distilled down to what's called a control test, uh, which is used. To put it simply, an employee as an individual who the employer has the right to exercise control over the manner and the means by which they perform their services. Where as an independent contractor is sort of being hired for the end result. So if you hired a painting company to come and paint your house, they show up at your house, they s they will often supply the paint, although you often, you know, get to choose the color, they supply the ladders, they supply the equipment, they supply the painters, and they paint your house, and maybe it takes a week and then they leave, and you, the homeowner, you're not in the painting business, and you can just pay them as an independent contractor, they're in the painting business. And that painting company, if they hire people uh, you know, to work for them, those people should be classified as employees. So in a movie, the director pretty much controls how everyone on the set does their job. Uh actors can't change their role, they can't decide when they want to show up. You know, everything is tightly should be tightly choreographed, otherwise, you know, the shoot's going to be a disaster.
SPEAKER_03Exactly. Oh my goodness. So uh let's go over that ABC test that they give us to make decisions. Could can you tell us what that is?
SPEAKER_02Yeah, so in in the Dynamax case, the Supreme Court re rejected the multi-factor test set forth in the previous decision, which is often referred to shorthand as the Borello case, in favor of this new ABC taste case. This new I'm sorry, this new ABC test, uh, which requires that the hiring entity, you know, to establish each of the following three factors to classify workers as independent contractors. In other words, the employer has to show these three factors, A, B, C, are present in order to properly classify someone as an independent contractor. The first is A, that 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, that the worker performs work that is outside the usual course of the hiring entity, the employer's business, and C that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity. So the Dynamax case applied the ABC test only to uh wage orders and left undecided whether or not it applied retroactively. This new law passed by the legislature expands the ABC test beyond wage orders and creates specific ex exceptions and says the law can be applied somewhat retroactively. So let's talk about the exceptions. AP A AB5 creates a number of exceptions to the A ABC test. The bill provides that that um where the exception applies, the previous Borello test would would determine whether or not a worker is an employee. So if a if a relationship falls within an A B five exception, the nature of the relationship will determine by the prior test instead of the ABC test. So AB5s exceptions fall into several different categories. There's certain exempt occupations, contracts for certain professional services, specific businesses, certain business-to-business contracting relationships, certain subcontractor relationships, uh, certain referral agency relationships, and certain motor clubs. Exempt occupations include insurance agents, doctors, attorneys, architects, engineers, security broker dealers, investment advisors, direct sales of salespersons, and commercial fishermen. But there is no specific exemption for filmmakers or those who work in film or television.
SPEAKER_03Wow, that's what uh the uproar is about. So um it but you say I just want to go back a minute, you're saying there's a hundred and ten million dollars that Uber uh is or that the car companies are putting together to uh change this bill to make them exempt, right? So there is a lot of money go uh going out there.
SPEAKER_02There would you say there is a small chance that this might be uh reversed or that are they just trying to I think there's there's I think there's a good chance it it may be reversed because they're gonna spend a hundred and ten million or more on this referendum, it's gonna go to voters in November. So at the same time that there's a presidential election and probably high turnout, people will show up. And you know, for the average person who likes Uber and Lyft and how cheap it is, they they may vote for it. But it doesn't affect the movie industry. So so even if it passes, it's not really gonna change anything in the movie industry.
SPEAKER_03It would just be for them. Uh they would become an exempt uh uh along with uh attorneys, etc. The ones you read off.
SPEAKER_02No, no, attorney attorneys are attorneys and doctors are already exempt. But this new this new referendum put up to a vote of the voters, you know, would would basically allow Uber and Lyft to continue to hire people as independent contractors rather than as employees. So it's uncertain whether it will pass, but I think it, you know, with all that money behind it and and probably not as much money against it, it I think there is a chance it would pass.
SPEAKER_03Okay. But that doesn't help us at all. We're still out here trying to uh figure out how to work within these laws. So um and all right, the next question then is, and most of these I've taken from filmmakers, and I so appreciate your helping us uh to get clarity on this. Uh another filmmaker asks, how does AB5 affect non-union films?
SPEAKER_02It it affects both union and non-union films, but unionized productions already pay 95% of their workers as employees, not as independent contractors, and for this reason the unions believe that this law does not affect them. The unions have also said that they don't think this law affects using loan-out companies, but some attorneys are not so sure. Um for non-union employees who are paid as independent contractors, the the employer can be liable, um, the filmmaker can be liable if they are misclassified. So the safest thing to do, frankly, is to hire a payroll company and let the payroll company deduct, you know, taxes and social security, and and that's the safest way. But of course it is it is an expense. And um, you know, but if you want to be safe, that's the best thing to do.
SPEAKER_03Hire a payroll company. Well, you mentioned l uh loan out companies. So some of the filmmakers are wondering should they create their own loan out company, uh, like create an LLC or an S Corp or even a single member LLC. So well that's the next question. If they decided they wanted to become a loan out company, what would you suggest they consider which type of a corporation?
SPEAKER_02So are we talking about crew now, or people are being hired?
SPEAKER_03Yes.
SPEAKER_02Well, um it it it appears that they can they can set up a separate loan out company which is considered a separate legal entity from them personally, and the purpose of loan-out companies is basically to save on taxes. So when a let's say an actor sets up a loan-out company, they usually own it a hundred percent. It's often a corporation, and um that when when they get hired by a studio, they say to the studio, instead instead of hiring me directly as an employee, I want you to contract through my loan out company for my services. So the the studio hires uh enters into a contract with the loan-out company, which is a hundred percent controlled by the artist, um, and they also get the artist to sign what's called an inducement agreement, which m which binds the artist directly to the obligations, because you know, companies can't act, only actors can act, and if the actor has a company and the company signed the contract and the actor doesn't show up, what what good does what remedy does the studio have? So there's a separate inducement agreement, you know, uh there that binds the actor. Anyway, the long or the short of it is that you can set up a loan out company and the loan-out company serves as your employer. There's an employment agreement between you and your own loan out company. Now it may seem silly, this is a company you set up, you've chosen the name, you own it 100%, and it's hiring you as the employer. So the studio can pay a flat fee to the loan out company, and the loan out company hires you and pays you, but the loan out company is your employer, and they're the ones who should be deducting and paying taxes.
SPEAKER_03And so the loanout company uh does deduct the money from the actor and pays the taxes for the actor?
SPEAKER_02Well, if they they they should be, you know. They should they're they're basically now the the employer.
SPEAKER_03Okay. They are the employer. Well, one of the questions is is a sole proprietorship sufficient for the B2B exemption or a fictitious business name, a DBA.
SPEAKER_02Okay, well, a sole proprietorship uh i in the eyes of the law it is not a separate legal entity. So a sole proprietorship is just you, your name, you know, John Jones, you know, op uh operating your business. There's no uh there's no separate legal entity. So if you sign contracts in your name, you're personally liable. On the other hand, if you set up a corporation and the corporation signs the contract, the corporation is liable. And if you haven't signed any guarantees, you know, uh to guarantee the the obligations of the corporation, if there's a lawsuit, the corpor the corporation gets sued, not you personally. So a lot of people want to if they're in a business, they want to set up a corporation or an LLC to give them some insulation because if things go bad and there's lawsuits and whatever, they don't they don't want um their personal assets, their home, their car, whatever, to be liable. So as a sole proprietorship, even if if you find it a DBA is just a fictitious business name. So if your name is John Jones and you want to, you know, uh call yourself uh Serendipity Productions, you can do that. You just file the DBA with the county clerk, you know, basically disclosing that you're doing business under this make-believe name, uh, but it doesn't give you any legal protections at all. Okay? And in fact, not only can people s become uh use a DBA, but corporations and LLCs. They can be incorporated under one name but do business under another name. But it doesn't give you any it doesn't limit your liability.
SPEAKER_03It doesn't limit your liability, and that's the most important thing in our industry. Right. Right. All right, so then another filmmaker asks, does a business license from your city count towards the professional service exemption or does it need to be a state business license?
SPEAKER_02The the the the business license by itself is is not necessarily gonna be, you know, determinative. Of course, if you're claiming that you you're operating a a separate business and you have a business license, that that somewhat confirms that you're operating your own own business. So so You know, if you're a caterer, you know, and you have a business license because it's required by your local city, um, that will add support that you're a separate business and you didn't just go into the catering business for this one film shoot where you were hired and that it's an ongoing business and this shoot you're working for one company and two months down the line you're working for another company and so on and so forth. In addition, though, of course, if you're in the catering business, that's not the movie business, that's the catering business. And so that meets one of the criteria of the ABC test that you're operating a separate business distinct from movie making.
SPEAKER_03Right. That's great. Well, let's talk about labor versus gear rental fees. So for freelance cinematographers, it's customary to charge a day rate for labor and another rate for the rental, the gear, and the prep for each job, the transport, and the insure. So uh can they receive a 1099 for their gear rental and a W-2 for labor on the same job?
SPEAKER_02Yes. Um they they can. I mean, w when you when you rent equipment, you're not hiring someone. There's no there's no employment relationship there. Because because you're not hiring someone. I mean, these rules about whether you're an independent contractor or a a employee have to do with hiring people to do to provide services. When you're renting equipment, you're renting a car, you're renting a generator, that's totally different. That's not an employment relationship at all. That that's a a vendor who's selling you equipment. No no one thinks that when you when you uh rent a generator, that the generator is your employee. It's just a piece of equipment. So you know, when you rent equipment, the these rules don't don't apply. If you if you hire a DP, let's say you hire a DP and the DP brings his or her camera along. Well now that now there's a little bit more reasons to say that, well, this DP is running his own business and I'm not only hiring him, but I'm hiring, you know, I'm paying for his equipment, and it's more likely to be considered an independent contractor if that's what he does, you know, for a living. But there's still the problem that the DP and his equipment, they're they're basically in the movie industry. So that would appear not to comply with all the three ABC factors.
SPEAKER_03Okay. So if that at that point he should uh bill for his equipment and his services separately, right? One becomes uh a W99 and one is a 1099.
SPEAKER_02Right, right. And and you know, when you rent equipment, you don't pay social security taxes. You you don't pay unemployment insurance taxes, you know. You you you pay a certain amount, it's gonna be gross income to the post house or the equipment house or whatever, um, you know, and and they're an independent contractor, but but they're not an employee.
SPEAKER_03Right. Okay, got it. Oh well, here's another good question. It says part of the law says collaborating with the same people often could demonstrate that you are dependent on that one job and therefore an employee. What if you're working as an advisor and most of your work is for one company, but you have no call time and you can work when you set appointments? How would you classify this?
SPEAKER_02Well, this gr there's gray areas here, and and you know, uh one of the problems with this whole scheme of treating employees and independent contractors differently is it's not always crystal clear whether someone is an employee or an independent contractor. They could fall in this gray area where it's not so clear, and there's so there's dangers. So my advice is if you're concerned about being fined, it's the safest thing to do is to hire them through a payroll company, and then you know, it d there's no one that's gonna come after you if someone's an independent contractor, but instead you hire them as an employee and taxes are deducted. There's no there's no risks for that. It's only if you hire someone who's deemed an employee and you pay them as an independent contractor that you have some risk.
SPEAKER_03Right. Well the penalties you mentioned earlier, are they still in effect? The five thousand up to twenty-five thousand per um offense?
SPEAKER_02As far as I know, they're still in effect. This this A B five hasn't changed them. It it's possible that they've been changed and I'm not aware of it, but my my guess is they haven't been changed.
SPEAKER_03So we'll assume at this point they haven't been changed. So you you it's much cheaper for you to just abide by what they're saying you have to do until something different happens, until this is uh this law is amended to include the film industry or some changes made, the safest thing you can do financially is to either uh start the loan-out company or just hire a payroll company.
SPEAKER_02Right. And but by the way, those penalties are for violating the law, but there could be additional penalties. So for instance, if you hired someone as an independent contractor and they should have been employees and they also worked a lot of overtime, now you you might also be liable for violating the overtime statute, you know. So so yeah, there could there could be a whole a whole bunch of potential problems.
SPEAKER_03Oh my gosh. All right. All right, so um here's uh another another question. Um Part one of the letter I received said an option to consider is hire an entertainment law firm. If you're a producer that has employment contracts in place drafted after 2020, you could potentially be subjected to tax penalties and lawsuits by both city and state of California. So does this mean that even if you have contracts in place, you could be fined if you were paid wrong?
SPEAKER_02Yes. When the courts look at a contract, if the contract says this is a contract for the sale of a duck, but it's obviously what you bought instead was a chicken, the court's gonna not gonna be fooled, you know. So if you if you say, you know, this person just because the contract says this person is an independent contractor, that doesn't make it so. If they should have been an employee, the contract's not gonna fool anyone, okay? So so it it you just have a y you know, I'm not sure m most independent filmmakers need to hire an entertainment law firm specifically for this. I would say hire a payroll company, you know, and and if you hire a payroll company, you'll probably be okay because this is exactly what the payroll company has expertise in. You know, if you're uncertain about what to do, yes, you could hire an attorney. But my guess is that that most of the time if you just had a payroll company, that would solve the problem.
SPEAKER_03Okay. All right. Now, um I've heard that I can hire people like DPs. This is from another filmmaker. I can hire people like DPs, etc., if they have their own LLC. But if they don't, I can't. Is that correct? No.
SPEAKER_02No, that's not true. You you can always you can hire you can always hire people whoever you want to hire. The question is, if you hire someone inappropriately, you may subject yourself to fines. But you can you could always hire, you know, um uh a DP. If you want to minimize any risk for misclassification, hire them as an employee. But but you don't necessarily have to, you know, um uh you know, you you can always you can always hire whoever you want. I mean you know, within reason. Uh obviously you can't hire miners for something that they're not supposed to be doing.
SPEAKER_03Right. Okay. Um all right, so then here's another question. If a potential DP does not have an LLC, could j they shoot something and then get paid a flat fee for their footage rather than a fee for their time. Um is that a possibility?
SPEAKER_02Well, it's a possibility, but uh once again I don't think you're gonna fool anyone if this if this uh transaction is scrutinized, I'm no I don't think anyone's gonna be fooled about it. You know, um the fact that you paid them on a a as a on a flat fee basis, that I mean that's really not gonna gonna fly.
SPEAKER_03Okay. Yes, because you uh uh the state's gonna get really tough on this is the point. They're gonna really get tough and well I don't know I don't know.
SPEAKER_02I don't I don't know how much they're gonna look look, I don't know how much they're gonna w how how aggressively they're gonna enforce this. To be honest, um there's probably a lot of violations out there and going after small independent filmmakers is probably not the height of the list of of who they want to go after. You know, the government tends to go after, you know, major criminal enterprises, you know, there's there's no lack of of wrongdoing out there to go after. To you know, to go after, you know, small independent filmmakers, it seems to me that that's not very likely, but there is there is some risk involved and and uh probably the government is is may not even realize what it is you're doing, but if someone complains, if someone who was paid as an independent contractor and should have been paid as an employer complains, well then they're gonna it's gonna go to the labor department and then you know it will be revealed what you did and that's where you're gonna have problems.
SPEAKER_03Yes.
SPEAKER_02And big So I mean the thing is the thing is this the real question is how much control do you have over that person that you're hiring. If if on a on a film set, the director and the producer tightly control what goes on. You know, people can't do their own thing on a film set. Everything is orchestrated, has everything is scheduled, you know, the actors can't just change their roles, they can't just show up when they want, you know what I mean? They're clearly, you know, un under the control uh of the production. So so to claim that they're independent contractors is probably not gonna work for most crew.
SPEAKER_03Right. So in other words, actors uh and most of the people on the crew were considered or should be considered employees then. Even before A B five. Right.
SPEAKER_02Yes, even that's right. Even b for for many years, for many years, you know, even before A B five, people who work on the crew, uh uh assuming you know you know that you're controlling how they do their work, um uh that they have to show up at a certain time and do a certain task and it's under your supervision, then they they should be classified as employees, not as independent contractors. Now, I mean, I suppose if you hired someone to go out and shoot footage of uh skyscrapers, you know, and then license it to you or, you know, do it for you, and they can shoot the footage when they want, where they want, however they want, maybe that's an independent contractor. But most people working on a set, you know, it's tightly scheduled and and and uh uh you know, there's this ver there's you're clearly under the control of the producer or the director.
SPEAKER_03Right. Okay. Well, the then is there any position on the crew that would not be part of A B five?
SPEAKER_02Well, I think you can make a strong case for for uh the caterer, you know, that's in the catering business. I think you can make a case for a casting director who has his his or her own company and works off-site out of their own office. I think the editor working for a post house or working at their own, you know, editing facility, uh perhaps a composer who works off-site on his own schedule and is contracted just to deliver a score, but isn't really, you know, there, you know, working under your control where you we you're basically just contracting for the end product. I think those people, you know, you can make a pretty decent argument that they're independent contractors, that they're not employees.
SPEAKER_03So and that might include a uh uh a color correctionist too.
SPEAKER_02Well, if they have their o if they have their own facility, their own own business separate and distinct from yours, um, you know, if you go to a lab and you hire a lab, they're not your employee, you're paying them a fee to do certain tasks. And and um, you know, uh I don't think anyone would consider them employees.
SPEAKER_03Okay.
SPEAKER_02Employees, you get to tell them how to do their job. You know, the the filmmaker, the director gets to tell the lighting person, the grip, the gaffer exactly how to do their job. You know, they they don't have a lot of discretion, you know, and and if the if the director doesn't like to shoot, they they say, okay, we're gonna do another cut, we're gonna do another take, you know. And and so in that in that situation, I think the those people, you know, working on the set are clearly under the direction of the uh of the production. But you know, if you hire a cater catering company and you pay them X number of dollars to supply food, there's some there's some control. I mean you're gonna specify in your contract what type of food, when it's gonna be served, you know, um, you know, what it's gonna cost. But you know, the film the film making business is different than the catering business. The catering business makes food for people to eat, filmmakers make films for people to watch.
SPEAKER_03Right. Exactly. Okay, well, let's get into this one. Um, is an offsite project uh based off site project based a good test if the work is performed outside the production company's office or shooting on a location that might satisfy the control factor. What is this?
SPEAKER_02Yeah, you know, as I said, if the casting director has their own office, you know, uh you could you can make that argument. The catering the catering company ha has its own office separate and distinct from from the from the production. Um if if they have their own facility where they do the work, then it's much more likely they that that they would be considered an independent contractor than an employee.
SPEAKER_03Right. Okay. So um as a sole proprietor, do I need to establish an LLC immediately in order to build a case for a B2B exemption?
SPEAKER_02No, not n not n necessarily. Um if you want to set up a if you're talking about setting up a loan out company, obviously you need to do it before you contract with a producer for your services. You can't the producer can't hire you through a loan-out company, it doesn't exist. But but um uh i it's possible to hire I mean if you hired a caterer who didn't incorporate or have an LLC, but they're in the catering business, then I I think you can still make the argument, even though they don't have a separate legal entity, that they're a separate business. There are some people who run businesses, you know, um that haven't incorporated or set up an LLC.
SPEAKER_03Okay. Well, what about the California franchise tax board? Would they be waiving LLC filing fees this year?
SPEAKER_02Um no, uh they they don't waive LLC filing fees. Um California will waive the minimum franchise tax for the first year of a corporation, the first year that it exists. So instead of the franchise tax, the minimum franchise tax on income, uh, which is eight hundred dollars a year, now California, because it wants to seem to be more business friendly, is saying that very first year for the corporation, you're just gonna have to pay the taxes you're owed, you're not gonna have to pay the minimum eight hundred dollars.
SPEAKER_03Oh, that's good.
SPEAKER_02But it's only for corporations, not for LLCs. Of course, most lowdown companies are corporations.
SPEAKER_03Okay. Well, Mark, d do you think this new law will uh reduce some of the shooting in California? I mean, if somebody uh is a New York production company but they want to shoot in California, uh now they they have to comply with all this. So uh that's gonna add more onto their budget than they probably intended. So I I think it might restrict some of the the uh incoming productions.
SPEAKER_02Well, maybe, but but I don't if you have a California-based company, even if you're shooting out of state, um I'm not sure these rules are gonna be any different for you.
SPEAKER_03If you have a California-based company, but if you have a Texas or New York company and they want to come to California to take advantage of our the scenery or something.
SPEAKER_02Right, but I I wouldn't necessarily assume that in Texas you you can uh you can hire everyone as an independent contractor and not an employee and not get in trouble. I I think m mo most states and the federal government both both want you to treat people who should be considered employees as employees and withhold taxes. Uh and that's gonna apply, you know, anywhere in the United States. So I'm not sure how big an impact i it it would it would have on on uh shooting in California as compared to someplace else. I mean most most uh California based companies they often hire a California payroll company e even if they're shooting part of or all of the movie abroad.
SPEAKER_03Right. Right. So it all goes back to find a good payroll company is the bottom line. That's the safest thing to do.
SPEAKER_02Yes, it's the safest thing to do, but it of course it's it it's an expense and some independent filmmakers making very super low budget films may may consider that a a significant burden because nowadays, you know, there are some filmmakers making films on their iPhones, you know, and uh you know, they're they're making films on very, very low budgets and pa and paying the payroll company may may seem a burden to them.
SPEAKER_03Yes. Well, do you have any insights uh into why indie filmmakers were specifically written out of the law uh exemption clause?
SPEAKER_02I I don't I don't know why my my my guess is that there was no entity lobbying for them um uh to be exempted from the law. Um I I think that um you know there are other uh occupations where um they have organized advocacy groups that uh probably intervened before A B five was passed and lobbied for them to get an exemption. I'm not sure anyone did that for filmmakers.
SPEAKER_03Right. Well, there are a lot of filmmakers joining together to describe the problems um that this creates for filmmakers in the hopes of getting this bill amended. Do you think it's worth the time and the energy to get involved in that? Do you think they have a chance?
SPEAKER_02Well the the look look so this new law just makes it more difficult to misclassify people. It changes the criteria. But going back quite some time, basically people on the crew should have been classified as employees even before this law was passed. So even if this law was revoked, then you just go back to the Borello test, which also, you know, ha has a lot to do with control. So I'm not sure, you know, uh I I mean I find it hard to believe that anyone's gonna convince the legislature to wholesale allow filmmakers to hire whoever they want uh on on cast and crew and and pay them as independent contractors. I just don't think that's likely to happen.
SPEAKER_03Okay. All right. Well tell me, are you speaking anywhere in the future that uh uh where we can tell our filmmakers that you'll be?
SPEAKER_02Yes, I'm giving I I every year I give a seminar for volunteer lawyers for the arts in Manhattan in New York. I'll be giving one this year on I think it's June 19th. It's an all-day seminar on a Friday, and um the uh seminar hasn't been posted yet, but it it when when uh the details are uh worked out it'll be mentioned on my website, which is www.marklitwack.com, which also has a lot of other information of that might be of interest to filmmakers that they can uh access.
SPEAKER_03Okay. Could you give us your phone number and uh uh what how to reach you by email?
SPEAKER_02Sure. My office phone number is 310859595, and uh we're in uh Brentwood, which is in Los Angeles, and uh my email is markm-a-r-k at marklitwack.com, M-A-R-K-L-I-T-W-A-K dot com. So it's basically my first name at my full name.com. Even I even I can remember that.
SPEAKER_03That's right. Well, thank you. I so so sincerely appreciate your time today. This is a lot of information and our filmmakers have gotten many questions answered. Thank you very much, Mark.
SPEAKER_02You're very welcome, Carol.
SPEAKER_03Oh, it's a pleasure. I know you're there every day working and helping filmmakers. It's a great industry, isn't it?
SPEAKER_02Absolutely.
SPEAKER_03Absolutely. Well, thank you so much. Best of luck.
SPEAKER_02Thank you.
SPEAKER_03Yeah. Okay. Really appreciate it. Thank you, Claire. Take good care.
SPEAKER_02Okay.
SPEAKER_04You're welcome. Be well, everyone. Now, in its second edition, Carol Dean's popular book, The Art of Film Funding, has 12 new chapters to cover all areas of film financing and how to avoid expensive pitfalls. Learn how to start with an idea and end with a trailer. How to make an ask for money. Create your story structure and your trailer. Legal advice, fair use, successful crowdfunding, how to ask for music rights, and what insurance you can't shoot without. Available on Amazon under Carol Dean and at FromTheHeartProductions.com. I want to remind our listeners that David Rakelin is a brilliant and talented award-winning musician who scores films and can compose music for a trio or for a full orchestra. David is a very good friend to the independent filmmaker and comes highly recommended by From the Heart Productions. If you need music to help tell your story, please contact him at Davidrakeland.com. That's davidr-a-i-k-l-e-s.com. And Carol and I want to thank you for tuning in to the Art of Film Funding. Please visit our website at From the Heart Productions.com. You can also find us on Facebook and Twitter. Good luck with your films, everyone.
SPEAKER_01Pack razors to new ways to get the kids in school because family supports family. At American Public University, we support military families with flexible, affordable online education that moves with you. As a military spouse, your intuition rate is the same as your partners. Just$2.50 per credit hour. American Public University education that moves with you. Learn more at abu.apus.edu slash military.
SPEAKER_00A little time. Enter Compa Catino with no download required. You can jump on anytime, anywhere for the category. All for free. Sponsored by Campa Catino. No Protect Scarf.
%20Heather%20Lenz%20(Photo%20by%20Amanda%20Majors).jpg)
