The New York Times details the mis-categorization of working stiffs:
Federal and state officials, many facing record budget deficits, are starting to aggressively pursue companies that try to pass off regular employees as independent contractors ...
... Many workplace experts say a growing number of companies have maneuvered to cut costs by wrongly classifying regular employees as independent contractors, though they often are given desks, phone lines and assignments just like regular employees. Moreover, the experts say, workers have become more reluctant to challenge such practices, given the tough job market.
Companies that pass off employees as independent contractors avoid paying Social Security, Medicare and unemployment insurance taxes for those workers. Companies do not withhold income taxes from contractors’ paychecks, and several studies have indicated that, on average, misclassified independent workers do not report 30 percent of their income ....
I've had a number of visual effects artists, storyboard artists and designers complain to me about this practice over the years. I've even known of assistant animators, working in-studio, who have been labeled as "independent contractors" by a company in order to get around taxes and unemployment.
Now, of course, we have outfits like MBO striving to be enablers for firms that don't want to be on the hook for taxes and unemployment benefits for the people they engage. The tap dance goes like this:
"Heey now! You're a happening cat with places to go and people to see! You don't want to be pinned down with that employee stuff! You need your free-dom! We'll help make the indie thing work for you! Just give us 5% of your cash flow! ..."
Nice work if you can get it, but here's the way it's supposed to work: If you're working on site, or taking direction for the work performed, or using the company's equipment, you're an employee.
There are certainly bona fide independent contractors out there, and there are certainly independent contractors who make good livings. But let's face it, there's a lot of cheating and corner-cutting being done by various companies, and lots of workers are being short-changed.
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37 comments:
Fantastic. Let's take away freelancers abilities to set up their own retirement plans and write their own tools. Let's interrupt their cash flow and take away their deductions. Let's discourage independence and entrepreneurial attitudes and make everyone a W-2 slave waiting for a surprise pink slip.
Unions and middlemen (currently) only help the employed, they don't protect the frequently unemployed masses that make up VFX and animation.
An employee does the same job every day. A contractor deals with new problems every day and solves them creatively, and has to make it compatible with an existing pipeline.
Maybe it's different at the big animation shops, but they are only a small percentage of the work.
The middlemen are fine for the people who dont want to learn about how business works, but lay off those of us who need (and deserve) the contractor status to turn a profit and stay off unemployment.
Here's a good measuring stick (but not the only one): do you send your employer an invoice or a timesheet?
Steve,
How much have you heard about MBO? I haven't worked with them, but there was a recent article on AWN and a lot of anonymous complaints came out in the comments. It seems in addition to the 5%, people are getting hit with extra taxes (that they wouldn't pay if they were just going the contractor route and getting paid from the studio).
It all sounds sheisty to me... the studio gets a questionably legal haven from the IRS while employees lose 5% plus even more tax than the usual income + self-employed? The whole mess honestly sounds like a giant shaft to workers and I don't even understand how it's legal.
What's our legal recourse? How does one file a complaint if they find themselves facing this situation?
"An employee does the same job every day. A contractor deals with new problems every day and solves them creatively,"
That's an ignorant statement. I have no patience for the factually impaired.
An employee does the same job every day. A contractor deals with new problems every day and solves them creatively, and has to make it compatible with an existing pipeline.
Please feel free to tell the rest of us in how many ways you're better than us sheeps.
God
"An employee does the same job every day. A contractor deals with new problems every day and solves them creatively,"
Not my best wording.
Certain jobs are continuous, other jobs are temporary (less than 1 yearr).
Temporary jobs need a different classification to protect those people. For now, "contractor" will have to do
MBO is most like a scam, and I'll fight them tooth and nail for my contractor status.
Prove to me that you're looking out for the unemployed, and we can talk.
MBO is most like a scam, and I'll fight them tooth and nail for my contractor status.
You talk a good game, but just wait until your individual health insurance premiums exceed what you can afford to pay and/or you come down with a preexisting condition.
Then you'll fight tooth and nail to get into MBO, just so you can buy their guaranteed-issue group health insurance plan with pretax dollars.
Or you'll work union and get top-flight health insurance through MPIPHP.
I was forced to work through MBO at a boutique house in Venice. They didn't tell me til after I agreed to book, and negotiated my rate, that I'd be paid this way. In the end, I waited 31 days for my first check, and my net was 52% of my negotiated day-rate. I averaged between 12-16 hours a day for 11 days straight on that job. I don't know about you all, but I can't afford to work like that, and I don't think it's fair that I, the artist, should have to pay the FX house's payroll taxes for them. MBO is just getting fat investing all the "employer/employee" witholding. I am expecting one more underwhelming check from them.
Certain jobs are continuous, other jobs are temporary (less than 1 yearr).
Temporary jobs need a different classification to protect those people. For now, "contractor" will have to do
You seem to look at 'independent contractor' as a philosophical approach, or a time-based definition. You're completely wrong on both counts. Being an independent contractor has absolutely nothing to do with the monotony of one's work, or solving problems creatively, or working more or less than a given time period.
There are federal definitions of 'employee' and of 'independent contractor.' The misidentifying of employees as independent contractors, to save money, is the issue here. Ultimately, most of that money is coming out of the misclassified individual's pocket.
Steve's post is not the attack on legitimate independent contracting, so don't feel so threatened. His post is about studios using shady and illegal practices to save a buck, at the expense of people who are actual employees.
Sorry to hear that, Anon #9. I was thinking perhaps freelancers could raise their rates to compensate for MBO's cut + any additional tax expenses, but obviously if you find out after you've negotiated... ugh.
And if these FX houses can shift payroll taxes onto their employees, they can under-bid studios that, you know, don't treat their employees like shit (and won't be around because of it).
Then you'll fight tooth and nail to get into MBO, just so you can buy their guaranteed-issue group health insurance plan with pretax dollars.
After you pay MBO their 5% fee, then pay the taxes that the employer is SUPPOSED to pay and your taxes, and your self employment, you won't be able to afford any health that MBO offers.
MBO is such a scam. I hope the IRS comes down on them, and the studios that are trying to dodge the IRS system by using this loophole.
In the end, I waited 31 days for my first check, and my net was 52% of my negotiated day-rate.
I kept 84% of my first MBO-handled paycheck. Three-quarters of that 84% went to my bank account, while the remainder is held in a mix of traditional and Roth 401(k) tax shelters. I can roll these 401(k)s to IRAs a month or two after I stop working on an MBO basis.
In my case, I see two losers. In the short term, Uncle Sam lost out because of all the real-time tax deductions I took and the traditional 401(k) contributions. 40% of my paycheck went untaxed. Of the remainder, 30% went untaxed into a traditional 401(k). I owed employer and employee taxes only on what was left after that.
In the long-term, though, I lost out, because my Social Security pension is linked to my average lifetime earnings. The more earnings I report on taxes, the bigger my Social Security check will be. The more real-time tax deductions I take and the fewer Social Security taxes I pay, the smaller my reported earnings will be, and the smaller my Social Security check will be.
I don't know what to make of the MBO system just yet. It seems slightly better than 1099 status, but far, far below Local 839 status.
After you pay MBO their 5% fee, then pay the taxes that the employer is SUPPOSED to pay and your taxes, and your self employment, you won't be able to afford any health that MBO offers.
Nope. The MBO health insurance is paid for with pretax dollars. The employer/employee taxes apply only to what's left after deducted expenses, 401(k) "employer" match, and (if you choose) MBO's Blue Cross guaranteed-issue group health insurance plan.
For single artists with preexisting conditions, it's a chance to get health insurance that they normally cannot purchase on their own. Local 839 offers a far better deal, though.
So, the savings you make by paying for med insurance with pretax $ outweighs the extra money you have to pay in (usual employer paid) taxes AND the 5% you are paying for MBO's services?
I'm skeptical that is the case.
I don't like the idea that I'm on the hook for paying the taxes that the employer is supposed to be paying in the first place. Then on top of this, I'd have to pay 5% to MBO for this in the first place. I'd rather keep that money and buy my health care myself or through the VES.
I hope studios get zapped by the government/IRS for doing this.
So, the savings you make by paying for med insurance with pretax $ outweighs the extra money you have to pay in (usual employer paid) taxes AND the 5% you are paying for MBO's services?
Probably not.
The first commenter on this thread loves his independent contractor status, though. He's already paying employer taxes on top of employee taxes, and he feels comfortable doing so. He later posted (at 11:13AM) that he would fight MBO "tooth and nail" for his "contractor status."
I pointed out that if his health and/or insurer failed him, he'd be fighting tooth and nail to get into MBO for that guaranteed-issue group health insurance. Under MBO, he would have almost the exact same tax situation that he does now as an independent contractor, save for that 5% pretax fee.
For guaranteed-issue health insurance, I'm sure a desperate independent contractor can overlook a 5% pretax fee.
A huge percentage of the LA boutique studios pull this "independent contractor" nonsense just to get out of paying some taxes. And they know damn well that if you work at their place, on their equipment, taking their direction, and working their time frame, you are ANYTHING BUT independent. Legally you are an employee even if you work just one day under those circumstances. Sometimes they get busted by the IRS and pay big penalties.
I have had to accept such work from these lame companies occasionally. If it is for a week or two I don't mind too much. But ultimately I have to pay the extra social security taxes and stuff which is nothing but B.S.
So what's the answer? I know a lot of people who self incorporate and then charge post houses as vendors but then the artist is still stuck with those payroll taxes and everything else mentioned. (though it's my understanding if you self incorporate you can qualify for certain small group insurances and you can write a whole bunch of stuff off and pay yourself into a lower bracket occasionally).
When it comes to health insurance I'm banking on VES or the local 839 as the best bet. MBO's plan is expensive and only worth it if you can't get coverage somewhere else (And that was told to me by an MBO rep directly). Don't worry about fighting to get in, they'll gladly take your money.
But even then the MBO stuff is pretty shady as they still aren't paying you by CA labor laws. I can't imagine why anyone thought this was going to make the problem better. Now there's someone dipping into our pockets making us mad and it's Still not really legal.
For a Jr artist this is even worse. Scraping to find work, low wages and working long hours to impress, and incorporating seeming an expensive alternative. At that point every penny counts.
I don't wholly blame the post houses, Entertainment is a tough business and post is constantly taken advantage of. Post houses constantly under bid each other just so they can even get jobs. This all needs to stop. Our end of the industry Needs to stand up for it's self.
I'm getting more and more frustrated with the industry, and I see my peers feeling the same way. Someone (everyone!) needs to do something about this before the studios and the IRS steam roll our industry into a wall.
I hope no one will flame me for asking a newbie question, but could someone explain what MBO is?
(though it's my understanding if you self incorporate you can qualify for certain small group insurances...)
When I spoke with the VES insurance broker, he said only businesses of two or more people can purchase guaranteed-issue group insurance. He's helped hundreds of couples with preexisting conditions form general partnerships just so that they can purchase guaranteed-issue health insurance.
A single artist with S-Corp status cannot purchase guaranteed-issue group coverage, because he does not meet the minimum definition of a "group." Single entrepreneurs are at the mercy of California's private individual insurance market, which can deny applicants with preexisting conditions and rescind coverage for sick customers who cost too much.
This is where MBO could prove attractive for a single independent contractor who already pays employer taxes on his income. It gives him the chance to purchase a secure, guaranteed-issue health insurance plan from a major insurer. It's expensive, sure, but still cheaper than a medical catastrophe here in the States.
When it comes to health insurance I'm banking on VES or the local 839 as the best bet.
I had a year's worth of coverage through the 839 in 2005. It was FANTASTIC.
However, the Visual Effects Society has not yet achieved guaranteed-issue group status with Aetna yet. They need 1000 applicants to be accepted by Aetna on an individual basis before Aetna will grant guaranteed-issue group status to that specific pool. Aetna was the *only* insurer to agree to this.
That pool has 800 accepted so far, and they're adding new applicants at a rate of 20 to 30 of month. Once 1000 is reached, the pool will be converted to a guaranteed-issue group insurance plan. Any member of the Visual Effects Society, Television Academy, and Producer's Guild will be able to purchase guaranteed-issue group coverage from Aetna through that specific pool. This includes people with preexisting conditions.
The VES insurance is still private individual coverage at this time, though. It should achieve guaranteed-issue group status later this year. Then single S-Corp artists will have an alternative to MBO for guaranteed-issue group coverage...if they join the Visual Effects Society, Television Academy or Producer's Guild.
I hope no one will flame me for asking a newbie question, but could someone explain what MBO is?
MBO in their own words:
http://creative.mbopartners.com/
A better explanation here:
http://articles.techrepublic.com.com/5100-10878_11-1031555.html
MBO's been around for over 20 years. They're probably a fantastic option for true independent contractors with multiple clients, but I'm not sure if they're appropriate for the VFX industry.
Fantastic. Let's take away freelancers abilities to set up their own retirement plans and write their own tools. Let's interrupt their cash flow and take away their deductions. Let's discourage independence and entrepreneurial attitudes and make everyone a W-2 slave waiting for a surprise pink slip.
You really don't read what I actually write, do you?
Just curious, as this is the unions’ blog, what their official take on all this is. Are they going to just protect their members from these scams we freelancers are being forced into or are they going to stand up for the entire industry? If its the former, it proves the utter uselessness of unions as they should be trying to improve conditions in the industry across the board and not just for the select few who squeeze in during an open window and pay for the privilege.
Someone made a comment about raising your rates to make up the difference from what is being deducted by MBO. That is f*@cking stupid as we are being nickled and dimed on our rates as they are now. A united front is the only way to combat this although, given the current studio mindset, they will just outsource the work to China or India to save a buck.
Just curious, as this is the unions’ blog, what their official take on all this is. Are they going to just protect their members from these scams we freelancers are being forced into or are they going to stand up for the entire industry?
Stand up for the industry to the extent that money allows.
We have gone to bat for any number of NON-members over the years, but please understand that resources are limited.
Priority one has to be dues-paying members, since they're footing the bills. But yeah, we fight many battles beyond those of our own.
That answer the question?
(Adding, we try to put out as much useful information here as possible. Knowledge is power.)
It looks like no one read the NY Times article Steven lead that article with. It's not a matter of what you want or how it's been - it's what is the law and who enforces the law. It was explained to me by a senior official at the Division of Labor Standards Enforcement that it is rare to have a proper, legal independent contractor in the same line of business as the employer. The cable worker in the second page of the NY Times article is one of the problems I have been waiting to blow up... get injured at a workplace as an independent contractor and neither your insurance or workers comp will pay for it.
On one hand I am stunned at some of the comments here but on the other I am thrilled to see lively discussion of these important issues.
Jeff Heusser
I read through all these comments and then right at the one above here I notice I missed the NY times article as well. Thanks Jeff for pointing it out! :)
MBO is doing some hokey stuff. I'm not a legal professional but a lot of it sounds borderline illegal. You work as a w2 employee to MBO. Employers are supposed to pay 50% of your SS(Social security) and unemployment taxes. Well MBO triple screws you by first charging 5% then they pass on the full 100% of your SS and they deduct unemployment taxes from your pay. They are simply passing on all the taxes direct to you even though the government specifically says that these are employer paid taxes, not employee
Here is another fun MBOness. California law specifically spells out that people working in film/video are not exempt from overtime laws. MBO though is still paying people flat day rates and non overtime hourly rates. It is all very fishy to me.
get injured at a workplace as an independent contractor and neither your insurance or workers comp will pay for it.
Are you sure about that? If I'm injured as an ind contractor while installing cable tv, my own personal insurance won't cover me? I've never heard such thing.. ?
Independent Contractor under an "S" Corp. is very typical in "above the line" positions. The tax situation usually works out in the employees favor due to the fact that you are able to write off several more items as deductions and only take what you need as personal income out of the corporation and report that as your net income for taxation. I don't know that it works so well for below the line positions at lower income levels, but it's probably difficult to even find a director (at least in live-action) who does not operate under an "S" Corp.
Thank you so much for this blog Steve. Without it I would ahve no idea what an MBO or any of this stuff means.
Oh and thanks God. Glad to know you read this blog too.
A good chunk of MBO's 5% fee goes towards the "free" General Liability insurance and professional Errors and Omisions insurance for employees working on an MBO basis.
I wonder if this gives MBO employees more protection in case of on-the-job injury than true independent contractors like Fritz Elienberg in the NYT article.
it's funny but there is this place called Europe. Now amazingly enough considering all their "high taxes" etc they have an effects industry. Actually quite a big effects industry. There are companies like framestore and cinesite europe and double negative just to name the bigger ones in london. I hear their is also an effects industry in other places like new zealand where there is a place call Weta. I believe quite a few other places like Canada and australia may have effects industries as well And they all pay taxes and have free healthcare and state pensions based on earnings.
maybe its time the some of you in the US woke up and smelt the coffee. Join a union, they're there to help you. Or move to a country that values you as a human being.
Europe has a mandatory maximum working week, and you don't see effects houses in europe collapsing, because they cant grind their workers into dust. In europe it's normal to take at least a paid hour off work for lunch, its typical for people to take off X-mass to new year, to have good solid summer holidays, to have weekends off. To retire at 65 with the years ahead of you, and your health care being paid for by your taxes.
yes our taxes are high, so are the benefits!
Unions of FX workers is clearly a good idea, and one that should be supported internationally. It would be better if there was a choice of unions just as there is a choice if you want to opt out. if you want to opt out that fine and gain some cash, but it works best when everybody is a part.
(and btw i not a died in wool unionist, I think unions defining who and who cannot work and what work can be done by whom is just as much an abuse of power as any mega corporation)
"kate"--thank you.
As an american who politically would put myself somewhere in the middle(or as Michael Powell put it in one of his film's lines "conservative by nature, labor by experience"), I weary of the argument that "yeah, they might have a life in europe--but their taxes are sky-high!".
I can't save much anyway in L.A. in 20 years of living and working here. I'd much rather pay more taxes(yes, MORE) and have more mandated time to live, thanks.
Oh-and the health care.
Go union!
We'll be working to organize the effects industry as we go along..
In my experience, when things get crappy enough, the tipping point comes and houses start to come under contract.
I talked to an effects employee a couple of days ago who's worked all over the world and he says the places he's worked have been roughly similar in their working conditions.
(He's a pretty even-tempered guy, also talented, so he's probably on a level where he's reasonably well-treated. But he's got the direct, personal experience and I don't, so I won't embroider what he said, but just report it.)
@kate:
Don't forget that in London we get dayrates, so no overtime and usually no extra pay for weekends.
They also make you sign a piece of paper saying you are willing to work more than legally is allowed.
But apart from that, I agree about higher taxes and health care etc.
Tom
As VFX studios continue to devolve, I suspect animators at Dreamworks and Disney will face fiercer competition from VFX artists for their kickass union jobs and sweet union benefits.
I can't be the only VFX artist thinking of jumping the VFX industry for a more humane job at Disney or Dreamworks.
We'll be working to organize the effects industry as we go along..To retire at 65 with the years ahead of you, and your health care being paid for by your taxes.Contractors Insurance California
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