ESCROW PAYMENT FOR PERFORMERS
Escrow Payment For Performers
With ABS You Will Understand Escrow Payment For Performers In The Film Industry
ESCROW PAYMENTS: WHAT ARE THEY?
It’s common practice for agents or business managers to negotiate an advance payment for their performers under an “escrow agreement” or, “advance pay” agreement. An escrow agreement is a separate contract (in addition to a deal memo or SAG-AFTRA Contract) that lays out the terms of a base salary for a performer that must be paid in advance. Under these contracts/agreements, agencies typically don’t release the performer to work (or travel to location) if funds are not paid in advance.
Sometimes this means that payments are sent to the agent or “escrow holder” without accounting for taxes or other payroll considerations. When this happens, the production company can end up facing extra expenses and hassle simply because they felt pressured into making a hasty payment and did not take care of tax paperwork, withholdings, or other payroll related issues. To avoid this, it is highly recommended that you work closely with your payroll company before making any advance payments.
DUE DILIGENCE: COLLECTING THE PROPER DOCUMENTATION
Before making an advance payment under an escrow agreement, there’s some basic paperwork you will want to collect. The basic tax documents are a W4 Form and an I9 Form—if you are hiring a performer who has a “loan-out” corporation, a W9 Form will be provided instead. You will also need a copy of any signed contracts or deal memos that state the performer’s rate/salary. Finally, a signed escrow agreement for the escrow pay should also be on-hand prior to sending any funds to a performer’s agent or business manager. The escrow agreement ensures that you will have in writing where funds are to be sent and the amount—although escrow agreements do not allow for employee withholdings (if applicable), since escrow holders are expecting the production company to take care of this side of things.
HOW TO MAKE ADVANCE PAYMENTS
The preferred method of sending an escrow payment is via a wire transfer, either directly from the production account or from the payroll company. The best and easiest way to send an escrow payment is to turn over all of the paperwork—listed in the previous section—to your payroll company and have them handle it from there. Our company, for instance, would receive your documentation, calculate the payroll taxes, and deduct that amount from the base salary before sending a wire. We would then be ready for when the performer actually performs services and payroll is due. Their payroll would be processed on a weekly basis until the escrowed amount was accounted for.
The other option would be to send the escrow payment directly to the agency, without including the payroll house. Many producers/production companies opt for this method to try and avoid payroll processing fees or just to get the payment out faster. However, this option is not recommended because the production company can end up “double paying” on withholding taxes or encountering other problems.
As an example scenario: you have already advance paid out $10,000.00 to one of your performers. ABS takes on the project and as the employer-of-record needs to record this payment in order to pay out SAG-AFTRA pension and health contributions and any applicable employer payroll taxes. Using the employee’s tax forms (W4/I-9), ABS determines that $1,000.00 needs to be withheld from the performer’s pay and then needs to pay those “employee” taxes to the applicable state/federal institutions—meaning that only $9,000.00 should have gone to the performer as their “net earnings”. At this point you are at the mercy of the agency or escrow payment holder to try and get that $1,000.00 back. If they are unable or unwilling to send that back, you the producer now have to pick up that cost and you are out-of-pocket an additional $1,000.00.
Even if the performer who is being advance paid is a loan-out corporation (typically not subject to withholdings), there can still be additional payroll costs (including a loan-out withholdings percentage when going for a state’s film tax incentive), so it is always advisable to at least consult your payroll company prior to making an advance pay.
DO IT RIGHT, THE FIRST TIME
Sending a proper escrow payment should be a straightforward process that requires only one transaction between the production company and the escrow agency: sending the funds to the escrow account. Unfortunately, when this is not done correctly it can create a lengthy secondary process to collect back the portion that should have been withheld from the “gross earnings”. The reason this is often such a headache is because once the funds are received by an agent they are often spent immediately. Agents and business managers have a responsibility to distribute the monies given to them to their clients as soon as they are able. For instance, if a tax free lump sum of money is sent to an escrow account, the agency in charge will take their full commission and divide the remainder over the course of production weeks until the end of a project. Returning to the agency at this point with a bill for the taxes not previously withheld poses a problem: the money is often gone. This situation puts a large amount of strain on the relationship between production companies and the performers they hire, not to mention the agencies stuck in the middle.
Avoid this trouble and potentially ruining your relationships with the professionals you hire by sending the payments correctly the first time. Work closely with your payroll company to ensure taxes are properly withheld before sending any escrow payments. Protect yourself and your company by collecting the proper paperwork (and the proper signatures) needed to have a smooth escrow process. ABS Payroll is committed to walking our clients through this process with as little headache as possible. As always, feel free to give us a call and speak with one of our knowledgeable staff members to answer any questions you may have about this or any other payroll related filmmaking topic.