Governor Gavin Newsom has signed SB 422 into law, protecting entertainment workers’ use of loan-out companies. The bill establishes these companies as the employers, responsible for taxes, and prohibits payroll firms from being classified as employers of loan-out entities. It follows concerns raised by a state audit of payroll provider Cast & Crew and reaffirms established practices in the industry, ensuring clarity and continuity for workers.
California Governor Gavin Newsom has officially enacted a bill, backed by unions, aimed at safeguarding the ability of entertainment workers to utilize loan-out companies. This legislative action follows an audit that raised significant concerns regarding the continuation of such practices within the industry. State Senator Anthony Portantino’s SB 422 is now law, ensuring that loan-out companies are recognized as the employers of the entertainment workers who operate under them, thereby necessitating the payment of employer taxes. The legislation also stipulates that payroll companies associated with the entertainment sector cannot be classified as the employers of loan-out companies or their affiliated workers. Under this new statute, these payroll entities will be required to furnish quarterly reports to California’s Director of Employment Development, detailing their financial transactions with loan-out companies. This law reaffirms and legitimizes the longstanding practice of using S-Corporations, C-Corporations, or LLCs by entertainment professionals who lend out their services to various production entities. The Writers Guild of America West articulated that the enactment of this legislation signifies operational continuity for loan-out companies, reflecting practices that have persisted for decades. Additionally, it preserves a critical court ruling that grants loan-out employees access to unemployment insurance benefits equivalent to other unemployed workers. Various stakeholders, including writers and reality television producers, depend on loan-out structures, which offer corporate protections alongside possible tax advantages. Rebecca Rhine, the Executive Director of DGA Western, emphasized in an interview that these arrangements have served the industry effectively, accommodating its dynamic nature characterized by multiple employers and projects. The bill’s impetus arose after concerns were expressed following an audit of Cast & Crew, a key payroll provider, which questioned the compliance of industry practices in utilizing loan-out companies for compensation rather than direct wage payments to employees. Cast & Crew issued warnings regarding these developments, asserting it was contesting the Employment Development Department’s stance and collaborating with entertainment unions and companies to mitigate the situation. In light of this audit, entertainment unions began dialogue with the governor’s office, culminating in this legislative solution. As noted by Ms. Rhine, this law provides crucial clarity regarding the function and implications of loan-out corporations within the entertainment sector.
In the wake of an audit by California’s Employment Development Department which questioned the practices of using loan-out companies within the entertainment industry, there was a significant push to protect the interests of entertainment workers. Many workers rely on these companies which allow them to operate as separate entities for tax purposes while engaging with various production firms. The increasing scrutiny from state audits raised alarm in the industry about potential changes and challenges related to compensation structures.
The recent enactment of SB 422 represents a significant stride in protecting the operational rights and tax arrangements of entertainment workers utilizing loan-out companies in California. This legislation not only safeguards established industry practices but also provides essential clarity for all stakeholders involved. It upholds the rights of entertainment employees to receive benefits comparable to those available to their counterparts under traditional employment agreements. Moving forward, this law will likely mitigate any uncertainties surrounding the use of loan-out companies, promoting stability within the entertainment sector.
Original Source: www.hollywoodreporter.com
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