For film and TV production crew members accustomed to being paid as 1099 independent contractors, switching to W2 employee status might feel strange and unfamiliar. Now that you’re having taxes withheld, it can seem like you’re making less money than when you just had a flat daily contractor rate. But there are actually a number of benefits to being paid as an employee.
What’s the difference between W2 and 1099 anyway?
Though it was once common practice to classify film crew workers as independent contractors and pay them flat day rates, more and more productions are reducing their liability and paying their film crews properly, as W2 employees.
Quick definition: A W2 is the form used by an employer to report to the IRS how much they have paid an employee in a given tax year, along with a breakdown of how much was withheld and paid on the employee’s behalf for income tax and other contributions. A 1099 is a similar document for reporting payments made to a business or independent contractor.
Generally, there are no withholdings shown on a 1099; the payor doesn’t make income tax payments on behalf of the contractor or acknowledge an employer-employee relationship.
Why is production making me switch to W2s?
When production companies insist on paying crew members as employees, it’s not to pull one over on the crew, or to save money on production. Far from it. In fact, while you’re having money withheld from your paycheck in the form of income tax, Social Security and Medicare, the production company has to pay its own share of payroll taxes and other fringes as well.
In an employer-employee relationship, the employer has to pay contributions to the federal and state government based on a percentage of each employee’s gross wages. These go toward unemployment funding and FICA. The employer also must pay for workers’ compensation insurance, to cover any work-related injury.
So why would production opt for this, if it costs them more money?
Number one, it’s the law. Misclassifying employees as independent contractors carry steep penalties, on top of having to pay back all the payroll taxes that were avoided due to the misclassification. Both the federal government and individual states have narrowed their positions on what qualifies as a true “contractor” role for employment and tax purposes. Production crew positions generally don’t qualify.
How W2 employment is good for crew members
The good news is, being paid as a W2 employee is completely to your benefit as a production crew worker. Here are the good things you get when you are paid as an employee on production:
- Unemployment. Did you know that when you get paid as a contractor, you are not entitled to unemployment benefits? Since you don’t have an “employer” who has paid into the state and federal unemployment coffers, there are no funds earmarked to pay you when you’re out of work. Part of the definition of an independent contractor is that you take on the risk of profit and loss — meaning when you can’t find work, that’s just a cost of doing business. But as an employee, when a job ends and you can’t find a new one right away, you can file for unemployment…and get paid!
- Workers’ Compensation. True independent contractors often are expected to carry their own workers’ comp coverage. This is insurance that covers job-related injuries that keep you from working. In an employer-employee relationship, the obligation for workers’ comp insurance lies with the production. In practice, workers’ compensation is often provided by an employer-of-record payroll service hired by production, but regardless, as an employee, you are protected.
- Overtime. The majority of jobs on a film set are properly classified as hourly, or “non-exempt.” That means the employees are paid on a per-hour basis, with a predefined straight-time rate. After a certain number of hours (depending on state or federal law, whichever is stricter), the employee must be paid a premium rate — usually 1.5X the straight-time rate, and then 2X the rate after a set period. It might surprise you to learn that a flat “day rate” is actually prohibited for hourly positions. When paying film crew properly as employees, workers must be given an hourly rate, overtime pay and any applicable meal penalties. When production is using a payroll service, those premiums are automatic, based on the reported work hours.
- Social Security. You pay into Social Security for a reason. Come retirement time, you want to be able to draw on those funds to pay your bills. And the government is well aware of how much you’ve contributed. In fact, your weekly payout in retirement is partially determined by how much you’ve paid in over the course of your career. If you’re not having Social Security withheld, you may be in for a surprise when you go to retire, and find you have a low weekly benefit — or worse yet, discover that you don’t qualify for Social Security benefits at all. You can look up your history of contributions and get an estimated benefit amount by creating an account at ssa.gov.
- No Tax Time Surprises. We’ve all been there. You freelance for many productions throughout the year, making a good day rate and feeling pretty flush. Then tax time comes. You hand all those 1099s over to your accountant, who comes back with the bad news that you owe the IRS a small fortune! Suddenly your cash flow is out of whack, and you’re canceling that trip to Machu Picchu. When you get paid as a W2 employee, though your next paycheck may be smaller each week, it’s because you’re making headway on your tax obligations. You may even get a refund… that Machu Picchu selfie is back on!
Bottom line of the W2
Though it may take a bit of getting used to, as a production crew member you stand to gain a lot by being paid as a W2 employee. Get ready for greatness.