How has AB5 affected our Video Production Company?
California Assembly Bill 5 (AB5) and Video Production
The California Assembly Bill 5 or AB5 went into effect on January 2020. I won’t deep dive into the law in this article (you can read the entire statute here), but it essentially makes it more difficult for companies to hire workers as independent contractors (IC). For someone to qualify as an IC, he or she must be engaged in a completely different line of work. For example, if you’re a video producer and you hire a plumber, that person could be an IC. If you’re a producer and you hire a make-up artist or music composer, they would not qualify as ICs even if those positions would not normally exist on your payroll.
It’s been several months since my video production company has adjusted to AB5. We’re a small company with project budgets normally between $10,000 and $50,000. We don’t have union gigs with collective bargaining agreements so almost all of our crew and cast were hired as independent contractors before 2020. Because of COVID-19, we’ve had to reschedule many of our shoots and projects, but here are some of the ways AB5 has affected our business so far and how we anticipate it will affect us moving forward.
We converted our regular independent contractors (1099) to employees (W-2) meaning that instead of simply writing a check, we would process their pay through our payroll. What this also means is that each person is more expensive to hire because of employers’ contributions to medicare, social security, training tax and unemployment funds for both State and Federal.
There are also added payroll processing costs. For example, as a small company, we use a PEO that charges us per paycheck. This of course was not an issue before AB5, but when we’re processing all of our crew and cast through payroll, it has been a significant expense. We’ve had video shoots in previous years with 10+ crew and 30 background actors. If we had a similar shoot this year, and even if we’re only paying each actor like $75 for two hours of work, we would still be on the hook for 40 payroll checks! So the cost for a shoot like that would be significantly more than before AB5.
There’s also the added cost to process new hires like payroll forms, I-9s, e-verify, and so on.
An option is to negotiate a significantly lower rate with each professional to offset the additional expenses, but we chose not to do that since we know how difficult it is to survive in the San Francisco Bay Area. We can also pass on the cost to our clients, but that's easier said than done.
We’ve seen more people file unemployment claims as a result of AB5. This happened even before the COVID-19 disruptions, but when shoots and projects were canceled or postponed, we’ve seen a significant increase in claims. Independent contractors would not be eligible for unemployment insurance – or at least it would not affect us as a company. But since we are technically an employer, when they file a claim, it affects our UI contribution rate and balance, which adds to our payroll expenses.
As for workers compensation, we don’t anticipate a change since most of our independent contractors did not have insurance and we covered them anyway.
Hiring Outside of California
We’re looking to hire more non-Californians because of AB5. For some roles, we can’t go out of state. For example, crew and cast would have to be Californians for the most part. But in some roles like editors, artists, voice talent, etc, we would definitely look at hiring outside of state or even outside of the country since it’s unclear how many states are looking to adopt something similar to AB5.
Has AB5 helped in any way?
The statute was designed to eliminate abuses like those inflicted on valet drivers, cheerleaders, and other gig workers. We totally understand and believe in the overall intent. As evidenced in all of the push-back, this blanket statute was not the solution to the abuses that have taken place and more incubation and beta time would have been beneficial.
As for our contractors, I guess the mandatory benefits help and perhaps it makes their tax returns easier. But I don’t see this as a significant improvement. I don’t know about other production companies, but we always provide things like meal breaks and overtime like we do with regular employees. And even with AB5, those that will abuse will abuse regardless of the classification.
We’re hoping that amendments will be made and exemptions extended to include companies like us that are working hard to make ends meet while still following all the rules.