Gov. Gavin Newsom on Monday signed a union-backed bill that protects lenders that were under threat of state audits earlier this year.
Actors, writers, and staff are typically not treated as employees of major studios. Instead, you are paid through a personal service company that “loans” your services to the studio.
The system, which has existed for decades, allows creators to deduct agent and manager fees and other expenses from their income taxes. But that arrangement came into question in May when the California Employment Development Department conducted an audit of Cast & Crew, one of the industry’s leading payroll services companies.
EDD has been inundated with unemployment claims from entertainment workers who were out of work during the industry-wide shutdown during the COVID-19 pandemic.
In response, authorities conducted an audit to determine whether lenders were actually paying payroll taxes to support the unemployment insurance system, as required by law.
Cast & Crew distributes checks to lending companies on behalf of studio clients. EDD took the position in its audit that the cast and crew should have paid the payroll taxes, not the loan-outs.
In May, Cast & Crew warned the Hollywood union that EDD essentially ignored the loan system and treated workers as Cast & Crew employees. Meanwhile, the union warned its members that EDD was seeking to “fundamentally change” the way the industry operates.
This sparked further alarm, with EDD issuing a statement saying it was not taking steps to “prohibit” lending, but rather was seeking to ensure all taxes were collected.
Mr. Newsom’s office and industry officials then spent months crafting a solution behind the scenes.
Sen. Anthony Portantino (D-Burbank), a key ally of the industry in Sacramento, introduced and passed the bill, SB 422, on the last day of the August legislative session. Newsom signed the bill on Monday, the last day for it to pass.
This bill codifies the loan structure in state law. The bill also clarifies that loan companies, not payroll companies, are responsible for paying payroll taxes. The bill would require payroll companies, such as Cast and Crew, to submit quarterly reports on loan-out payments to the EDD beginning in 2026 to assist in tax collection.
In a statement supporting the bill, the Hollywood Federation of Labor Unions said the bill would “prevent any disruption to our industry at a time when we are facing major disruption and unemployment for many of our members.” Probably.”
Cast and crew executives told Variety in May that the audit affected about 2,000 lenders. At the time, cast and crew challenged the EDD decision in closed court before an administrative law judge.
The 2,000 companies were to receive notices informing them of the audit. However, that never happened as the interested parties decided to legally fix the issue.