Since AB5 (Assembly Bill 5) took effect in California on January 1, 2020, documentary filmmakers have found themselves facing drastically increased costs, confusing new rules, and unresolved questions about the law's implementation.
Documentary asked attorney Leslie S. Klinger, vice president of the Motion Picture and Television Tax Institute, to explain the basics of AB5. "For the typical production of a documentary, most everyone is going to be an employee of the production company. That's the bottom line," Klinger says.
This may come as a surprise to filmmakers who have built careers operating as independent contractors.
Understanding the Law
Klinger explains the so-called "ABC" test, referring to AB5's criteria for employee classification. To be considered an independent contractor, a person must:
(A) Provide labor or services for payment free from the control and direction of the hiring entity in connection with the performance of the work;
(B) Perform work that is outside the usual course of the hiring entity’s business;
(C) Customarily engage in an independently established trade, occupation or business.
"If you fail any of these conditions," Klinger maintains, "then you are an employee."
Piece by Piece
Here's how Klinger breaks down each component of the ABC test.
ITEM A: Being "free from the control and direction" of the hiring company has "always been an aspect of the independent contractor test. Almost everyone on the scene for production is going to be under the control and direction of the hiring entity. The control and direction generally means 'time and manner.': 'This is when we need you, here's where you show up, and this is how we want you to do it.' That’s the first test."
ITEM B: "Generally almost everybody is going to be engaged in working on the production" because everyone working on the film is going to be considered part of the "usual course" of business for a filmmaking entity.
Why does classification matter for filmmakers? Now cinematographers, sound, editors and others will be classified as an "employee," requiring the employer to withhold funds.
"There are two principal consequences to somebody being an employee," Klinger explains. "If someone is an employee, then the employer has an obligation to make withholding, to withhold from their pay federal and applicable state and local income taxes. And if the employer does not withhold, and the employee fails to pay their taxes, the employer is responsible for the employee’s income tax, to the extent that they should have withheld that income tax from the employee."
"I [the employer] pay them [the worker] gross, without taking withholding," Klinger continues. "If they fail to file a tax return and the government cannot collect from the employee, the government can turn to the employer and say, 'You owe us the money that you should have withheld.'"
A worker classified as an employee must also withhold payroll taxes, worker's compensation, state disability and more. If withholdings remain unpaid, the employer is generally is held responsible, according to Klinger.
ITEM C: Klinger clarifies that proving yourself as an established business could involve having a business license and a customer base. But he cautions, "You’ve got to satisfy all three of these conditions" – A, B and C. If you cannot satisfy one of these, you fail all three, and have to be classified as an employee.
The law makes multi-state productions more complicated. "Anybody producing a film in California, no matter where the company is from, is going to be subject to these rules," Klinger assets. "People who are performing services in California are going to be governed by these rules regardless of where the employer is. What about if you're a California company but you’re shooting in Utah? You're probably not covered by these rules. This is a big grey area."
What about, for example, a cinematographer on a multi-state shoot who could be classified as an independent contractor in another state? "You can't get away with treating a person as both an employee and independent contractor," Klinger maintains.
As for international productions, "If you're a production company shooting in Toronto? It probably doesn’t impact you, at least for the person performing services in Toronto."
AB5, In Real Life
Filmmakers struggle to cope with the law's real-world ramifications. Being classified as an employee means a change in tax deductions. Classifying those formerly considered contractors means setting up payroll and possibly paying for support services to ensure correct implementation.
Jen Gilomen is "a documentary filmmaker and cinematographer, so I'm both a hiring entity and a person being hired," she explains, which makes AB5 especially foggy. "Previously for the last three years, I've been freelancing completely and running my own business. I have a different business for each film project, which is very common. Most of those are partnerships. One of them is an LLC. As a freelance cinematographer, I work as an independent contractor for everyone, whether it's a big tech company or a filmmaker I'm filming for. I do freelance producing work also. So I sort of cobble together a living doing my own passion projects as a director and producer and hiring people to work on my projects. And then I am a freelancer. So my world, at least in the last several years, has been 1099s all the way. This AB5 came out of the blue to me."
Frustrated and hearing similar sentiments from fellow filmmakers, Gilomen uploaded a robust toolkit for filmmakers who would like to explore and understand AB5.
While Gilomen is sympathetic to the law's intentions ("I don't want anyone to be exploited and I have a lot of feelings toward corporations exploiting their workers"), she acknowledges that it's causing harm. "If I get hired as an employee, I can't deduct my expenses. When you're in the business of doing something like cinematography, those expenses are always really high. We have to replace our cameras every three years. Sometimes it's even more rapid than that. We spend all this money customizing them all the pieces that go with the camera, learning to use them, becoming more adept. We want to use our own cameras when we go shoot because we have already customized them. I've got it all set up. I've got my ergonomics. My easy rig I use fits my body. These were all big investments I made in myself and my business. It really pisses me off now…not be able to deduct those expenses because we’re in this faux-employee mode. It is just kind of infuriating."
With a project in development, Gilomen has slowed down, "afraid to hire anyone or do anything to move my film forward. Now I'm wondering if I have to do as much of it as I can myself without hiring people. I formed an LLC at the end of last year in a little bit of a panic wanting to have it not slow me down. But that in and of itself isn’t enough."
Marcia Jarmel, a producer/director/writer/impact producer with PatchWorks Films, expressed similar sentiments. "Who knows what we're supposed to do and who knows how we're going to stay alive?" she wonders. "Am I protected as a DBA? I don't actually know. I talked to my accountant, my attorney. We're all scrambling to try and figure it out."
"It's going to be 18 to 20 percent more expensive," Jarmel figures. "Where is that money coming from? We're all working all the time at our edge and then this is like another burden. I'm happy to protect the Uber workers and the gig economy workers being exploited. But this is not us [filmmakers] being exploited. This is how we survive.
"I honestly don't think they meant to wipe out the independent film community in California," Jarmel continues. "That's what it looks like is going to happen." She expresses concern that "people who freelance are not going to hire in California. They'd rather hire people from another state. We're going to lose work that way also."
Passing legislation without understanding its full impact necessarily calls for a course-correction. Where might AB5 be headed? "An industry-wide exemption wouldn't surprise me,” Klinger says. To achieve that, constituents will have to
"Write your legislator. Would it help if IDA got involved alongside the PGA and DGA and WGA and others? Of course."
Gilomen echoes the call for a filmmaker exemption. "I made a list of, as far as I understand it, who should be exempt because they act as professionals. Above-the-line people like cinematographers, editors, lighting professionals, sound recordists. The people operating as a business with an office and multiple clients. These are not people who should be employees."
"What I hope," Jarmel shares, "is they’ll reevaluate this bill and write it in a way that it does what they intended it to do and not do what they didn't intend it to do. We should have an exemption."
Suz Curtis is a freelance writer based in Los Angeles. She writes narrative and documentary features. MFA-Screenwriting, UCLA. @allthingssuz
