Tuesday, October 11, 2011

The latest vfx scam: Artists paying all the taxes

Word from the westside of town is artists working at The Mill in Santa Monica are paying their share of taxes .. as well as the employers.

The Mill has engaged Yurcor to act as the Employer of Record for the artists they employ. Officially, artists work for Yurcor and are "loaned out" to The Mill. Yurcor is therefore responsible for the reimbursement to the artists for their work time at The Mill.

The Mill explains this has allowed them to:

"meet compliance requirements and improve administrative support to [their] valued freelancers.

By using Yurcor’s services you gain W-2 status and many of the benefits and services of a full time position while keeping all the career freedom and tax savings of a 1099 freelancer."

A full-time employee keeping the "freedom" of a freelance employee sound to good to be true? It should. Its also illegal.

To give that feeling of freedom, Yurcor not only withholds the traditional payroll taxes employees are responsible to pay (Fed Income, FICA, CA Income and SDI). They also withhold the employer portions of FICA, FUTA, California state unemployment insurance (UI), and the employer workers compensation insurance.

Documents we've received show Yurcor sells this as a benefit to the artist:

Employer of Record (EOR): “Employer of Record” is the best of both worlds; you establish your rates, you determine your work schedule, you can move from client to client, you can submit pre tax business expenses to offset your gross billings in arriving at your gross payroll, and you have access to health & retirement plans!

Similar to a 1099 scenario, you are responsible for both the employer and employee portions of the payroll taxes. Employer taxes are deducted pre tax as an administrative fee against your gross billings, employee taxes are deducted through payroll, and business expenses are reimbursed to you pre tax with your payroll direct deposit!

After contacting the Employment Development Department, the California Labor Commissioner, the IRS, and our attorney, we disagree with their assessment of the situation. Based on those conversations, we believe this is illegal and there are avenues available for the artists to recover the wages that were taken as a result of this practice.

If you have worked at or are currently working at The Mill in Santa Monica, we are interested in speaking with you. Contact Steve Kaplan at the Guild at (818) 845-7500 or skaplan@animationguild.org.

With your help, we can help stop this egregious infringement on labor and tax law while working to get your rightful wages returned to you.


el diablo said...

wow. they are evil geniuses. mot even I could have come up with such a scheme.....


Anonymous said...

I currently work at a company that employs this exact same tactic. Is the law or something similar in place in other states?

Ard Collier said...

I've had a couple folks ask me how to determine if their facility is using an employer of record service. If TAG could outline how to do that, we'd all have it available as a reference for ourselves and other artists. Thanks!

Steven Kaplan said...

Anon 4:58,

Yes, Federal law is being broken as well as state. No employer can pass down their taxes to employees.

Steven Kaplan said...

Ard Collier,

Thanks for asking. The best way to determine if you're working for an Employer of Record is to look at who is paying you. Checking your paycheck will tell you where your money is coming from, and what is being deducted.

Not all EOR situations are bad or illegal. There are plenty of studios who utilize payroll companies that follow the law.

However, if you notice withholdings that aren't standard or usual, ask your employer for an explanation.

Anonymous said...

Initially this was my first reaction when I was introduced to an Employer of Record company. After a lot of research I did learn, to my dismay that this is not an illegal operation. This is very similar to how staffing companies have operated for decades. They bill a client one rate, and pay their employees another. The difference in the rate being billed out and then paid is rarely disclosed, but covers their taxes and the fees. Only difference I see if that the employer of record company writes it all out, and shows what the deductions are. The studio is not bring you on with a traditional w2 rate, they are offering you the same freelancer rate we received when were paid as a 1099, so why would an Employer of Record company that might incur additional fee, equivalent to what we paid at end of the year be so wrong? Instead of paying x amount for taxes at the end of the year as a 1099, I pay additional fee equivalent to that, which allows me to keep my freelancer rate, and not be direct for the studio. If I want to continue a freelancer life style and do not want to be brought on directly in house and have my rate cut 12% or more, then how is this so wrong? It’s a fee involved for using their service. I personally have not used Yurcor, but I have used one similar to that called MBO. Maybe I am missing something.

Steven Kaplan said...

Hello Anon,

I have a feeling we've discussed this before. While I'm glad you found ways to "benefit" from working under MBO, there's a key difference in your example you're not seeing.

Said staffing company has charged the employer extra for the taxes and costs of loaning an employee to them. Yurcor is, essentially, charging the artists. The artists are not being double classified, or even misclassified. They are plain being ripped off.

Secondly, and more importantly, its against the law. Just as misclassification as a freelance employee, the laws governing the use of loaned employees are delineated and specific. At no time is the EOR to pass employer taxes to the employee.

While its comforting to hear you made the situation work for you, you were still ripped off.

john said...

This situation has been in discussion for years. MBO and Yurcor seem to be the main offenders. I heard MBO has left the fx industry because of the amount of complaints. I know previously Psyop and Motion Theory used them. Glad to see TAG is looking into the issue.

If I remember correctly they were getting around the laws by altering people's hourly rates in a way to justify them paying the employer taxes.

Other articles covering this issue (read the comments):



john said...

This is MBO's explanation of how it is legal:

"I’ve written about the concept of how each self-employed individual opens up their own division of MBO Partners, how their business center has earnings from various sources flowing in, and expenses flowing out, and how the individual hires and pays their own self (and if they choose, others) based on the profitability of their business center. It is a structure that emulates self-incorporation and paying yourself on a W-2. You are the Executive of your own business center under the MBO Partners umbrella."

Anonymous said...

This has been going on for years. Why is this only getting attention now?

These bastards (and I refer to the EOR and the studios) have been justifying it for way too long. I hope they get fined for all past taxes we've had to pay!!

VFX Soldier said...

Here's the thing. It's pretty obvious some smaller facilities are doing this to cut corners. If it was legal the big facilities like Sony,dd,rhythm, and ilm they would have used these same services ages ago. None of them do from my knowledge and my guess is if they did, they run the risk of some big legal trouble.

Steven Kaplan said...

We are getting the sense that this isn't just a Los Angeles issue and that it has taken place for some time. We were made aware of MBO's practices and wrote about them in this forum back in early 2010.

The more we are made aware of what is going on, the more we can help. We are interested in speaking to artists working under this condition directly and getting copies of paycheck stubs as well as meeting with our attorney.

As always, we can help only as long as the artists want it. We can not pursue Yurcor without effected artists willing to stand with us.

Jeff said...

Here is what I don't get... the laws are very clear about supervision and such determining status as employee yet here we have EOR companies that are essentially acting as payroll companies (they don't make deals, set rates, supervise) yet they are to be considered the employer? IMHO it's a blatant dodge of independent contractor laws and then labor laws (as I have heard they are paying day rates or OT but not after 8 hours). If they are the employer shouldn't they be on the hook for OT not paid in the past?

All of this stuff is very hard for the individual being offered a job to fight - another reason we need unity and a voice as a group.

Anonymous said...

The Mill NYC Also Forces you into Yurcor. The thing that is further messed up, is that even if you have a fully working S-corp, they make you sign up with Yurcor and eat the 2.5%fee. Yurcor then requires you to have both workers comp and liability insurance set up, even though I have been exempted by workers comp them selves. All this for Yurcor to cut you a check to your S-corp. Basically almost $900 of insurance expenses, then the 2.5% fee over your invoice, + don't forget all the costs to running your own S-corp to get away from these type of companies in the first place.

Anonymous said...

Just a thought, if you know you are going to get more taxed deducted why not just negotiate your rate higher to compensate for the difference ???

Steven Kaplan said...

Another thought, knowing this is 100% against the law, why not drop me a line and help make this a moot point?

Anonymous said...

"negotiate your rate higher"

Sure.. Just so you can get taxed more? The Mill low balls artists anyways. I don't think would work too well.

They do this so they can underbid everyone else on work.

Anonymous said...

My checks say "GEP, Inc." Am I getting scammed too?

Anonymous said...

wouldn't it be great if all of this energy was focused towards the source of the confusion...specifically the state and federal 1099 contractor definitions? the available documentation states that a true 1099 contractor is someone who (i'm summarizing here) operates under their own means, utilizing their own equipment, under their own schedule....essentially a small percentage of the artists we are speaking of. theoretically, in the current economic climate and with governing bodies in need of revenue, federal, state and local officials have chosen to enforce this definition to the letter and collect payroll taxes from those individuals in violation. rather than inefficiently chasing the individuals however, they have cracked down on the production companies who had been paying them as contractors rather than employees. This status quo has been mutually beneficial to both the production companies and the artists for a long time, to the (perceived) detriment of state and federal tax revenues, ergo the infamous "audits". so rather than fighting the production companies who are trying to protect themselves from a sudden surge in tax liability (which in keeping with the sh*t rolls down hill truism will inevitably demand the dreaded decrease in artist rates we're discussing above before there is any increase in client bids), rather than fighting the EOR companies looking to make a quick buck from the current climate, why not demand a re-evaluation of the independent contractor code. in all the latest political speak of the need to protect small business and create jobs, it seems appropriate to broaden the definition of a true independent contractor to include the likes of the VFX artist...those "travelling" professionals who utilize a production company's facilities and equipment to provide a specialized service. of course this could be a dreamstate.....political solutions as opposed to industry in-fighting? pee-shaw

Anonymous said...

The Mill has been one of the most easy going, upfront and honest studios I have worked for. Without this solution, they would not be able to utilize us freelancers.. would you be happy if they just did not use us all together, yeah that would be great! At least then you would have something new to complain about not having a job. I do understand the employer of record service, and have grown to love it. Take some time to understand it, rather then try to preach legal jumbo. Its a service that has been in place for over 35 years, you think it would have occurred to you that perhaps you are misunderstanding the logistics of the service? These post make me laugh. - Freelancer in CA

el diablo said...

I've wroked as a freelancer before. That studio did not collect any taxes on my behalf, I paid them later at tax season,that's the norm. This situation is different, and from a couple of the comments, sounds like an illegal procedure. So laugh all you want, but smells like something rotten in Denmark...

Steven Kaplan said...


I'm fully aware of the legality and practice of Loaning Out employees. Before my illustrious career in Organized Labor, I once worked for Apple One and was "Loaned Out" to offices around Los Angeles as an assistant/office boy. I negotiated my rate with Apple One. I assumed Apple One charged the OFFICES I worked at the extra money to cover the costs of my employment as well as a profit for themselves.

While I welcome The Mill and any other foreign company to open offices in our fair burg to gainfully employ artists, I think it goes without saying that I expect them to follow the rules and regulations for employers in this country. One of which clearly states, employers shall pay employer taxes.

Comments like yours make me groan and want to cry.

Anonymous said...

Okay, both my husband and I have had to sign up with Yurcor, he also had so sign up with MBO to get paid. We are in NYC and have an S-corp, and as previous commenter mentioned, Yurcor makes you get roughly $800-worth of insurance that you most certainly do not need (worker's comp, liability) just so that you can get paid by them. Not only that, but in our experience, the payment process lasted many, many months, i.e., we'd submit invoices, and get paid like, three-to-four months later because, as Yurcor claimed, they had to make adjustments. There was even a paycheck that they conveniently 'lost.' They've always seemed rather sheisty, I always knew it was illegal to charge employees taxes that their employers should have been paying, and I really hope Yurcor get penalized. Out in NY, it's very hard to get anyone to pay attention to these things because we don't have a union or any other organization to deal with these things. It's every freelancer for themselves.

Anonymous said...

Reading these chains of comments, really makes me understand why as a freelancer we are dealing with the situation we are. I am almost as bad to even reply to such nonsense. It just really makes me sick. You all are acting like children going back and forth talking nothing, its embarrassing that I am even apart of such a group of “grown ups”. I have freelance for over 25 years, and never experienced such immaturity.If I were these employer companies I would be laughing at the ignorance of these statements. I did get a chance to use Yurcor, and though I prefer to be paid as a 1099, and handle all the tax and filing myself, I understand the need for the service. You should all be ashamed.

Anonymous said...

Ready: Let's say you normally make $4 ! With Yurcor taxes you get back $2... You raise your rate to $6 ! With Yurcor taxes you get back $4 !!!

Which is the same amount you where making originally ! That crazy math problem works automagically :)

If you feel like your rate is not being met then, let me think about this one really hard, I KNOW ! Don't work there !!!

>herp< >derp<

Richard said...

Obviously anonymous works for yurcor (I'm guessing it's Alanna!). Your bs misinformation is fooling nobody! The only one this fraudulent system benefits is the company that is evading taxes as a result!! I have been freelancing for 4 years now, and I have NEVER seen this before! Most companies that file you as w4 follow the law and pay their taxes. You say the alternative is them not hiring you....are you mental??? They would actually not hire artist to do their work over just paying their taxes??? Sounds completely illogical to me! Stop trolling this blog and let actual artists chime in. You are coming off a bit like Bernie Maoff in a retirement blog!

Richard said...

Btw, your "crazy math" is ENTIRELY CRAZY!!! To say that charging a company more so they can steal more makes NO SENSE. First we aren't talking $4 or $6, we are talking thousands. Your example is saying that if I charge 25% more, I will return 25% less but "break even"??? Firstly, that is twisted! Secondly...we don't make $4/ hour!!!!! I make between $50 and $60 / hour. So your telling me, because you plan to rip me off I now have to raise my rate to $65 to $75 to make $50 to $60????? Do you see how ludacris that is???? Can you do me a favor and explain that to the companies you shill for.

I understand that you aren't an artist. You are an accountant. Your job is to squeeze everyone as hard as you can to lower your bottom line and end up black. But we have to fight, every job to get our rates. I do turn down jobs that come short. But that is when they tell me upfront they can't afford me....not when they lie to me and steal behind my back!!

I told you in my email that I would be a part in changing this practice and I meant it....wheels are in motion.

Anonymous said...

Kind of have to agree with Anon above you Richard. I am a fellow free lancer and let's say you where making $4000 before Yurcor. If you up your rate and are still making $4000 after what difference does it really make. And I've been working as a freelancer for over 10 years now and if you are a good person and talented then there will always be work. No one forced you to work for The Mill. If you aren't happy with the rate they offer then it's your responsibility to not accept the job. Sounds like this is a personal issue. Sorry you are having so much trouble. I can relate but let's be logical here and not just act out of emotions.

Dave Rand said...

Interesting anonymous comments as usual.
Once again Steve Kaplan is on the ball exposing unethical/illegal practices and artists like Richard are coming forward and refusing to be a bailout plan. VES 2.0's site could use a section for stories like this. If there is one? I'm having trouble finding it. Maybe someone can enlighten me.

Anonymous said...

I've worked at the Mill NYC....agree with upping the rate to break even. It is still a pain in the ass to pay my own liability/workmens comp but whatever. More importantly look at this monkey wrench:


Richard said...

Thanks Alanna, er I mean anonymous. Firstly, good luck convincing a company to up your rate by 25%! Secondly, if I could convince a company to pay me an additional 25% do you really think its fair that I shouldn't get any of it???? Why would I jack my rate up just to pay that companies taxes. How about trying a little dose of reality.

Lets try this....you go ahead and pay my income taxes for this year.....if its too much for you to pay your own and mine, why don't you just ask for more money from Yurcor??? Come on, your worth it, right??

Richard said...

BTW, this has nothing to do with emotions...this has to do with money being stolen from artists wallets. This has to do with you thieves stealing my entire rent for the month from me! That is illegal and quite immoral. How do you people sleep at night?

Anonymous said...

These "up your rate" comments or those saying it isn't a big deal ; are either... An accountant at the studio or working at the EOR themselves.

If you are a freelancer and charge $50 an hour, and you tell the studio you now have to charge $70 to cover the additional taxes the EOR is taking out, they are not going to do it.

Obviously spoken by someone with an agenda. Certainly not a freelancer. If they are, they need a few more brain cells.

The studios are trying to pay lower hourly for the jobs they are low balling to get. Do you really think they are going to pay more in hourly rate - effectively negating the advantage to begin with? Get real.

Can't wait until the EORs are gone once their illegal activities are exposed. Also can't wait for the studios who are going to get hit with penalties.

I do feel bad for the accountants at the EORs who will have to find a new sucker to fleece.

Anonymous said...

The whole dec=bate about asking fore 25% more is ridiculous. If a company were willing to pay an artist 25% more than they would've been willing to pay the artists taxes. The reason why they don't want to pay the taxes is not because it's troublesome, but because they want to get away with pay LESS money. So the chances that they will agree to a higher rate is a complete BS argument.

Anonymous said...

Hmmm interesting article....I dunno what to say but it is rather fishy...I've been a freelancer for 10+ years in NYC...I have my own LLC and pay for my own workers comp....but what I really don't get is why don't the studios just tell us to do that instead? With your own LLC and paying for your own workers comp you still get your 1099 and you act as your own company which you handle your own payroll. Is it cause the studios don't want to deal with telling the freelancers that so they can just pass us along to these shadey EOR companies?
Maybe it's just easier on their end and they can keep using the freelance artists without having to wait on them to incorporate.

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