Gov. Gavin Newsom Signs Bill Protecting Loan-Out Companies in Hollywood
Gov. Gavin Newsom recently signed a union-backed bill aimed at protecting loan-out companies in the entertainment industry, a move that comes after a state audit earlier this year raised concerns about the tax structure for actors, writers, and crew members.
Traditionally, individuals in the entertainment industry are paid through personal service companies, commonly known as loan-out companies, rather than being classified as employees of major studios. These loan-out companies allow creatives to deduct various expenses from their income tax, including agent and manager commissions.
In May, the California Employment Development Department conducted an audit of Cast & Crew, a major payroll services company in the industry, to ensure compliance with payroll tax requirements amid a surge in unemployment claims during the COVID-19 pandemic.
The audit raised concerns about whether loan-out companies were fulfilling their obligations to pay payroll taxes that support the unemployment insurance system. The EDD’s stance suggested that payroll companies like Cast & Crew should be responsible for these taxes, rather than the loan-out companies themselves.
Industry unions and stakeholders were alerted to the potential impact of the audit, leading to discussions behind the scenes to address the issue. Sen. Anthony Portantino introduced SB 422, a bill that was swiftly passed in August and signed by Newsom on the final day of the legislative session.
The bill solidifies the loan-out structure in state law and clarifies that loan-out companies are responsible for paying payroll taxes. It also requires payroll companies to report payments to loan-outs to the EDD starting in 2026 to ensure tax compliance.
Industry unions praised the bill for preventing disruptions in the entertainment sector and safeguarding the livelihoods of their members during challenging times.
Notably, the audit affected approximately 2,000 loan-out companies, with Cast & Crew contesting the EDD’s determination in a legal proceeding. However, the stakeholders opted for a legislative solution instead of individual audits.
