Unfortunately, a paymaster like NPI Entertainment Payroll would not be able to help in continuing this practice due to the high liability factor; however, there are other options you can consider. Let me explain:
According to the IRS, and state laws, there are rules that must be followed in order to label a person an independent contractor. Not only do they have to be a legitimate business, but they must follow the test of “non direction and control”.
Just because an independent contractor signs a contract does not necessarily mean they are an independent contractor. The IRS looks at how the “position” is possibly directed by another, and determines whether that “position” is filled by an employee or an independent contractor.
For this reason, NPI Entertainment Payroll will not pay independent contractors unless it is a position that requires “self direction”, and even then, the independent contractor must have corporation status. Generally speaking, the “above the line” people in a production can be considered independent contractors, where your “below the line” people should always be considered as employees. There are exceptions but you are still in the “gray” area where the IRS and state regulators can rule against you.
Bottom line: It does not matter if someone states they are an independent contractor, if the IRS determines that the position is held by an employee, you will be liable for employer AND employee taxes as well as penalties. Plus, it’s just not the IRS or state regulations you have to worry about. All it takes is one independent contractor deciding they want unemployment benefits after the job is completed, and decide they are an employee instead of an independent contractor – that is always a “red flag” to State Auditors. The IRS and State Auditors can go back three years, and in some cases more!
Here are your options:
1) Keep doing what you are doing, knowing that the climate in the Entertainment Industry is changing, and the days of classifying people as independent contractors is ending with penalties and ramifications increasing, especially with state regulations – lower cost (depending on the cost of the Production Accountant processing the payments 1099s) but very high liability.
2) Use NPI Entertainment Payroll to help manage your personnel by paying them as employees, and only paying independent contractors when they are legitimate corporations in positions that the IRS defines as positions that can be filled by independent contractors – higher cost but with little to zero liability.
Even though you will incur a higher cost by choosing NPI Entertainment Payroll, the benefits outweigh the costs. Here is a list of some of the benefits you will obtain by using NPI Entertainment Payroll as your paymaster:
- All employees are filed under NPI’s FEIN instead of yours, which means NPI is responsible for the tax liabilities, not you. All you need to do is give us accurate timecards with the correct employee information.
- NPI will pay all the taxes (employer and employee tax fees, including all Federal, state and local taxes) to the applicable agencies.
- NPI will handle all the liability of filing accurate returns to the IRS and local and state governments.
- All tax deposits and quarterly taxes are filed through NPI.
- Year end W-2s and 1099s are processed by NPI.
- The W-3 (employer form) is processed by NPI and sent to the IRS.
- If there are any discrepancies in the amount of taxes paid, NPI will take care of the issue, not you.
- NPI is responsible for any errors in tax filings and NPI will pay the tax penalties, not you.
- Unemployment filings are handled by NPI, not you.
- Direct Deposit procedures are handled by NPI, not you.
- Verification of SS numbers is handled by NPI, not you; and if there is an issue, NPI will notify you of the issue.
- If there are any garnishments (tax levies, child support, etc) that are required by law to be taken out of an employee’s check, NPI will take care of those requests, you do not.
- If there are any issues regarding fraudulent check cashing, NPI will handle the issue, not you.
- Worker’s compensation insurance is handled by NPI, not you.
- Worker’s Compensation claims are processed through NPI, not you.
- Every year, there will be a Worker’s Compensation Audit, which NPI will handle, not you, and any extra payments that need to made are paid by NPI, not you.
- If any Unions are involved, NPI will process all the related pension and health benefits on your behalf.
- If any Union “back payments” is required from an employee, NPI will process the request from the union so you do not have to deal with it.
- Where applicable, NPI will provide the Final Cast List for you to report to SAG
In addition, you will retain the right to hire/fire as well as determining work schedule and pay scales, as long as it follows state and federal regulations.
Bottom Line: NPI Entertainment Payroll and your company are considered “co employers”, where NPI is listed as the “employer of record”, and is responsible for all tax filings, unemployment and workers’ compensation.