“Are adult performers in the entertainment industry considered employees or independent contractors?
Considering I’m an Accountant this doesn’t seem like the hardest question on earth, but finding an “official” answer to this question is difficult, to say the least. But, it’s not impossible. The largest issue I have with this debate is that I could make a very compelling argument to justify either classification. This basically means that I would be very beneficial during an audit, but it doesn’t necessarily answer the ultimate question: Are adult film performers working for an independent production company considered employees or independent contractors DURING AN OFFICIAL AUDIT?
I already know what my professional opinion would be, but that’s exactly what it would be nothing more than an educated guess or an opinion I’m willing to fight for during an audit. In the course of everyday business, the distinction is pretty clear and takes all of a few seconds to determine. But, everything becomes slightly more complicated when it comes to specific performers within the various sectors of the entertainment industry.
Unfortunately, I have the pleasure of dealing with the IRS on a pretty regular basis. So, obviously, I called them to see if I could get a definite answer based on the specific criteria of the normal adult performer working for a normal production company. It’s not like the relationship between adult performers working for adult film production companies is really all that unique. Contract adult performers are easy. The one or two day performer classification is what I wanted to find out.
I could just reasonably assume it works the exact same way as the mainstream film industry. But, from personal experience, mainstream performers are generally classified as employees on the state level as well as on the federal level UNLESS they elect to be a “Loan Out” performer which is somewhat similar to an “Independent Contractor,” but not exactly and only applies on the federal level. You still remain an employee on the state level. This doesn’t seem to be how the adult industry operates.
As I expected, I waited on hold for 18 minutes until I finally got to speak with an IRS agent. After I finished speaking with the agent while banging my head on the desk the only answer I got was that the IRS does not give out official decisions regarding classification of workers without specific details for each case. I still don’t quite know why I even bothered to call considering I already knew the exact answer they were going to give me? Oh well, at least I tried…
Just for the record, there IS a way to get an official determination from the IRS whether you are considered an “employee” or an “independent contractor” for IRS purposes. There is actually an official form known as IRS FORM SS-8 which you simply fill-out and mail to the IRS. Of course, we are dealing with the government here so it generally takes up to 4 months to get an official determination. But, knowing whether you are an “employee” vs. “Independent Contractor” (aka a 1099) is important for a variety of reasons, but mainly when it comes to payroll taxes.
I must mention that the most insanely annoying part within this whole discussion is that the IRS decision doesn’t even determine your classification with the State Departments. So, technically, the IRS could classify you as an “Independent Contractor” for tax purposes while the State Department could then classify you as an “employee” in regards to official State labor laws and/or health & safety standards.
I guess since I can’t give you a definite answer at the moment (or for the next 4 months until the IRS finally decides to answer one fucking question regarding the correct worker classification of adult industry performers) then I’ll just explain a little about how it usually works in the mainstream industry:
There are ONLY 2 federal classification options:
2. “Loan Out” Employee (similar to certain independent contractors)
Once you have been hired for one (or multiple) scenes as a “performer” you will be automatically classified as an employee. During the paperwork process, the payroll dept. will ask if you elect to be a “Loan Out” on the film?
Here is a brief summary on “Loan Out Corporations” and how they work:
A “Loan Out Corporation” is set up as a completely separate and legal entity usually for an actor, performer, recording artist or other individuals in the entertainment industries for the purpose of using the “Loan Out Corporation’s” Corporate legal protection and Tax benefits. (This method is almost always recommended for high-earners, but can generally be used by anyone.)
A performer decides to start up a Corporation to be used as his own “Loan Out Corporation”. This is almost always either a C-Corporation or an S-Corporation with its’ own unique tax ID#. Articles of Incorporation must be provided to the production company along with proof that the Corporation is in good standing with the State.
-Individual social security numbers are not allowed.
-Sole proprietorships, Single-member LLC’s, multiple-member LLC’s and Partnerships are generally not allowed.
(It should be noted that I have seen a few non-SAG/AFTRA, low-budget productions who have allowed single-member LLC entities with a separate Tax ID# to be used.)
-The production company contacts the performer’s agent or the performer directly who accepts the job through their “Loan Out Corporation.”
-At this point, the production company has hired the “Loan Out Corporation” for the scene NOT the individual performer. The “Loan Out Corporation” then LOANS OUT the services of their “employee,” aka the performer. So, essentially the production company now has an employee which they have “borrowed” from the “Loan Out Corporation.”
-The full payment for services gets paid directly to the “Loan Out Corporation” who then pays their “employee” aka the performer for his services. No payroll withholding taxes are withheld from the check.
-The “Loan Out Corporation” is therefore responsible for paying all payroll taxes.
1. The “Loan Out Corporation” will receive a FORM 1099 from the Production Company.
2. The “employee” aka the performer will receive a FORM W-2 directly from the “Loan Out Corporation.”
*I would also like to add that if any performer or producer decides to file FORM SS-8 to get an official determination from the IRS, please let me know the final outcome. Thanks.*
THIS IS FOR INFORMATIONAL PURPOSES ONLY. CONSULT WITH YOUR ATTORNEY OR TAX PROFESSIONAL FOR MORE DETAILS.