Organize Employers of Record?
A disturbing trend in the world of the freelance visual effects artist is the recent requirement from various production companies that short term employees sign up with “Employers of Record” services in order to skirt the rules regarding the classification of employees Vs. freelancers.
There have been several recent articles written about this Freelancers Dilemma and you can read them at The Animatinon World Network and Motiongrapher web sites.
This practice seems to have started on the East coast but is spreading West to the dread of California based freelance visual effects artists. These “Employers of Record” companies charge the freelancer a percentage of their paycheck in order to deal with the paperwork, effectively offloading the typical payroll and accounting costs that a production company would absorb onto the backs of the freelancer without offering any of the benefits such as sick days, vacation, health insurance, retirement plans or legal counsel. Some production companies will not hire an artist unless they agree to sign up and pay specific “Employer of Record” services. At the end of the day, the freelancer is classified as an employee of the EOR service company.
This unfortunate situation resulted from a recent crack down on the convenient but illegal practice of classifying employees as freelancers. There’s a good article on that posted in the New York Times, linked here, about this practice in general use. The extensive fines for studios engaged in the practice of misclassifying workers created a perfect storm for companies like MBO and Yurcor to step in and make a buck while sheltering the studios from scrutiny, oversight and the responsibility of providing usual and customary services, such as payroll and benefits, to their freelancers, er, employees.
Under normal circumstances, freelance workers and independent consultants would be prohibited from forming a labor union since a union functions to collectively bargain for a group of employees and and an independent contractor by definition is neither a group nor an employee however once a freelancer signs on with an “Employer of Record” they are, in fact, employees… not of the production company but of the Employer of Record. This puts the EOR in the position of being the employer of a large number of visual effects artists who may now be eligible to form or join an organized labor union.
One New York-based VFX worker and former union member has suggested that perhaps The Animation Guild or The Editors Guild could look into this practice and at least think about the possibility of promoting the idea of organizing the labor of this marginalized group of visual effects workers who now may be eligible to organize. What are the Employers of Record at this point if not very large shops?
Could the thousands of visual effects artists who are forced to sign up with EOR’s print out and pass around Union Authorization Cards? Would this perhaps force the EOR’s to sign union contracts at which point the studios that hire workers through the EOR’s will be required to pay fair rates and not abuse their formerly freelance workers through unreasonable hours or conditions?
Would it be possible to organize the EOR companies like MBO and Yurkor so that workers bouncing from company to company would have the portable benefits a labor union could provide?
I don’t profess to know the full scale of the issue or the legal realities of the situation so I invite the readers of this blog to hash this idea out in the comments section. I look forward to hearing from you.
Obviously, the current situation is not optimal, and the EOR is clearly a scam.
However, we’re talking about a company skimming off the top or union dues. Either way, someone is taking money for our work.
Maybe it’s better we all chip in and hire a lawyer.
In fact, if a union successfully organized the EOR’s you be on the hook for both the EOR fees and the Union Dues, but at least you’d get portable benefits as you bounce from gig to gig. Do the EOR’s give you any benefits? Health care, 401k, pensions, sick time, vacation accrual and representation come with a monetary cost one way or another.
Animation Guild initiation is a one time cost between $1500-$3500. Quarterly dues are $101.
I know that some of the EOR’s offer pay as you go group group benefit plans. I don’t know how much they charge for those or how they compare to IATSE/Motion Picture benefits with regards to either cost or quality. If someone can fill me in I’d like to hear about it.
“Do the EOR’s give you any benefits?”
Yes, if the employee chooses to pay for them.
This’ll be long-winded, but I hope it answers the question.
Under the MBO system (and regular 1099 status), the artist is both employer and employee. This means the artist must pay employer taxes *in addition* to employee taxes. Unlike a 1099, though, taxes are withheld from each MBO paycheck, and the artist receives a W2 at the end of the year.
However, since the MBO employee is paying employer taxes, he is entitled to employer tax breaks.
These tax breaks are as follows:
- realtime deductible expenses
- purchasing Anthem health insurance with pretax dollars
- larger contributions to 401(k) retirement savings accounts
All the tax deductions that 1099 freelancers normally take at the end of the year can be done in realtime through the MBO system. If you enter $500 in expenses, for example, $500 of your earnings will pass tax-free through to you in your next paycheck. The remainder gets taxed in a lower tax bracket.
MBO’s guaranteed-issue group Anthem insurance plan could be worth it for single artists with preexisting conditions. Like other expenses, the MBO group plan is bought with pretax dollars. Again, the remaining taxable earnings gets taxed in a lower bracket. I am not taking advantage of this tax benefit at this time, however.
I *am* taking advantage of MBO’s 401(k). Normal 401(k) plans limit employees to a $16,500/year contribution, while an employer can contribute $49,000/year. Under MBO, where the artist is both employer and employee, they offer a $49,000 employer-level limit with a unique take on a 401(k) employer “match.”
The MBO user decides how much he will contribute as an employee, and the first 6% of this contribution is self-”matched” five times over by his own pretax earnings — up to 30%. This self-matched contribution escapes both employer and employee taxes, and goes into a traditional 401(k). The remaining income — again — gets taxed in a lower bracket.
Employee contributions can go into the same traditional 401(k) and defer employee taxes now, further lowering their tax brackets. Or, they can contribute post-tax income into a Roth 401(k) for tax-free withdrawals in retirement.
These MBO tax benefits are also portable if the artist moves from MBO studio to MBO studio. If the artist does not take advantage of any of these benefits, however, he would be better off working as a traditional W2 employee.
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A 1099 freelancer can grant himself similar benefits. A 1099 freelancer can take deductions at the end of the year, instead of realtime like MBO. A 1099 freelancer can save a portion of his 1099 income for retirement with a Vanguard SEP-IRA, instead of using the MBO 401(k).
For guaranteed-issue group health insurance, though, MBO could be the only game in town for freelance artists with preexisting conditions. This could change when the Visual Effects Society rolls out its guaranteed-issue group insurance plan later this year.
Even the VES, though, restricts membership to those with 5+ years’ experience in the industry. This screws younger artists with preexisting conditions unless they work at a studio that offers group benefits, or at an MBO studio that lets them purchase group benefits.
Like I said — long-winded, but I hope it answers the question.
[...] Post about companies using Employers of Record also one titled Organizing Your [...]
i was starting to suppose i may well be the sole person that cared about this, at the very least now i comprehend im not ridiculous
i am going to make sure to pay a visit to some various other threads immediately after i get a tad of caffeine in me, it is actually hard to read with out my coffee, take care 
Interesting, I have not heard about this…
I just stumbled upon your Blog and found your post to be very thought provoking. I was wondering if you had a newsletter or feed or something I could subscribe to? I really enjoy your writing style and don’t want to miss any posts!Personally it’s amazing how powerful unions have gotten and I think shomething does need to be done unfortunately…
The points you made in this post are extremely valid and I will remember them for life.
Hmm that’s quiet interessting but actually i have a hard time figuring it… wonder what others have to say..
[WORDPRESS HASHCASH] The poster sent us ’0 which is not a hashcash value.
I am not going to be original this time, so all I am going to say that your blog rocks, sad that I don’t have suck a writing skills
[WORDPRESS HASHCASH] The poster sent us ’0 which is not a hashcash value.
There is an alternative to these Employer of Record payroll services which has existed in the TV commercial and film production industries for many years. That is the Employer of Record paymaster services such as CAPS Universal, where I work and companies like Entertainment Partners. We take on the Employer of Record responsibilities but we do not charge the employees any fees. We charge the production companies the employer share of payroll taxes and a Handling Fee. The employees get are charged ONLY the employee share of payroll taxes. Normal income tax withholding is done and the employees get a W-2 at the end of the year.
We process over $500 million of payroll a year on this basis and have hundreds of production companies as clients.
If anyone would like more information please feel free to contact me. czucker@capsuniversalpayroll.com – 212-263-3269 x 104.
I trust you would not have reservations if I placed a part of this site on my univeristy blog?