Do you need production payroll?
Erin Pearson
Erin Pearson
December 10, 2019

Is your Production Company AB5 Exempt?

ABCs AB5 Exemptions for Productions

With the AB5 bill only a couple weeks away, it is a good time to break the ABCs , to see if your production company is exempt. In September, the CA Supreme Court decided that unless a company can irrefutably prove otherwise, a hire is an employee. Thereby protecting employees from companies exploiting loopholes in the law. Making it intentionally difficult to be classified as an independent contractor. The Supreme Court's goal seems to be two-fold. First, stopping companies from using contractors' agreement, to avoid paying benefits to crew members. Second, the tax revenue from this law will be an estimated $8 billion. It’s the classic, “one disruptive kid ruins the class party for everyone” situation.

If you haven’t yet, read our article on the AB5 law basics, it gives a good overview of how this affects you as a filmmaker. AB5 can be a serious pain in the butt, to those people working in film who prefer to work as a contractor. But we are here to help. Topsheet is an entertainment payroll app that automates the process so you don’t have to hire extra hands to handle this. We can save you days or weeks of work, saving you not only time but also money.

The ABCs of the AB5

As a recap, the ABCs are what the state now recognizes as the definition of “independent contractor”. All three of these instances must be met in order to be considered an independent contractor. If one of these factors is missing, the person hired must be an employee. It’s a very broad net.

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 the work performed.

Example: Craft Services would likely be an employee because they are under the control and direction of the hiring entity. They are told when and where and how to perform their job. Crafty is on every set, so it is a usual course of the hiring entity’s business and they don’t work outside the entertainment industry. Hiring a chef would probably fall under the “employee” category because they are under the control and direction of the hiring entity. Their hours are controlled as well as the type of food prepared and the time frame in which it is prepared. Hiring a Catering Company can be an independent contractor because they are not under the control or direction of the hiring entity. They set their hours and their wages. Caterers have an off-site kitchen and they have their own established business.

But That’s Not All, Folks.

Prior to the ABC test, there was the Borello test which considers the employer’s “right to control work details”. Under the right-of-control test it is, “not how much control a hirer exercises, but how much control the hirer retains the right to exercise.” Based on the verbiage, most assume that employers must comply with both the ABC test and the Borello test. However, that is not true. Based on the type of employment, you will fall under either the ABC or the Borello test. Here is a list of occupations, subject to certain licensing and other requirements, that are general exemptions to AB5, so the ABC test does not apply to them and they must use the Borello test:

A) Doctors (physicians, surgeons, dentists, podiatrists, veterinarians, psychologists)

B) Professionals (lawyers, architects, engineers)

C) Professioanl Services (marketing, human resources aministrator, travel agents, graphic designers, grant writers, fine artists)

D) Financial services (accountants, securities broker-dealers, investment advisors)

E) Insurance brokers

F) Real Estate agents

G) Direct sales (if compensation is based on actual sales and not wholesale purchases or referrals)

H) Builders and contractors

I) Freelance writers and photographers (if contributes no more than 35 submissions to an outlet in a year)

J) Hairstylists and barbers (if licensed and if able to set own rates and schedule)

K) Estheticians, electrologists, and manicurists (if licensed)

L) Tutors (that teach their own curriculum and are not public school tutors)

M) Commercial fishermen

N) AAA-afiliated tow truck drivers

All other occupations are covered under AB-5, so the ABC test applies.

The Borello test factors are as follows:

1)Whether the one performing services is engaged in a distinct occupation or business;

2)The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;

3)The skill required in the particular occupation;

4)Whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;

5)The length of time for which the services are to be performed;

6)The method of payment, whether by the time or by the job;

7)Whether or not the work is part of the regular business or the principal; and

8)Whether or not the parties believe they are creating the relationship of employer-employee.

Additionally, the Borello test borrows 5 more factors from the Fair Labor Standards Act to determine a worker’s classification:

9)The alleged employee’s opportunity for profit or loss depending on his managerial skill;

10)The alleged employee’s investment in equipment or materials required for his task, or his employment of helpers;

11)Whether the service rendered requires a special skill;

12)The degree of permanence of the working relationship; and

13)Whether the service rendered is an integral part of the alleged employer’s business.

Final Thoughts

Basically, your crew is now employees in most cases. If you have specific questions, please talk to a lawyer, to find out for sure, to avoid fines or potential jail time. This law is broad on purpose, so finding loopholes will be tricky at best, but almost impossible. Please, please, please, err on the side of caution and consult a lawyer. Topsheet offers a myriad of tools and automation for production companies, up to 25x faster than anything else on the market. As well, we have a free mobile app for tablets and phones that make all of this easy for productions; union or non-union. If you have any questions please reach out, we would love to help you.

Resources

AB5 Bill: This is the Government page for the legal document.

Borello test: Information on the previous way that CA would judge an Independent Contractor.

Topsheet: Production & Entertainment Payroll and Administration service that automates the process, making the transition easier to payroll.

AB5 Essentials Blog: Blog about how the AB5 Law will affect Production Companies.

About Topsheet

Topsheet is an entertainment tech company specializing in production payroll. We service clients from commercials for Fortune 500 to feature films. We are born in technology, built with filmmakers in mind.


Do you need production payroll?

Hi. We are Topsheet. We are determined to revolutionize production payroll. Our only question is, will it be your production?

Don't forget to share this post!