The Truth About Production Liability

There’s long been a misconception in the entertainment production industry when it comes to production liability.

For decades, productions have designated the payroll company as the employer of record (EOR), and in doing so they often believe, should a liability issue arise, for example, with regard to the proper classification of production employees as contractors or as overtime exempt, that the EOR—or payroll company—would be responsible, and not the production company.

However, as a federal appeals court made clear in Cencast Services L.P. v. United States, the production company is still the common-law and statutory employer of production employees, whether or not a payroll company acts as the EOR, which means that the production company is still on the hook for any legal actions relating to the proper payment to and/or taxes withheld from these employees. While many production companies know that merely designating a payroll company as EOR does not shield them from liability for such claims, others may be operating under this misconception.

“Regardless of whether the production company or the payroll company is the EOR, the liability for the production in many ways is the same.  If a co-employer relationship exists in the eyes of the IRS, producers also are responsible for the proper treatment and taxation of the people they hire. PEOs make a lot of sense for small businesses that need buying power for benefit plans, but in the entertainment business where most producers may not provide benefits to short-term employees, the only benefit of using a PEO other than perhaps convenience, is for the PEO. Even for producers who do provide benefits, using a PEO isn’t their only option. At GreenSlate we pioneered the model that allows the production to be the EOR giving producers significant financial benefit with no change in liability protection,” said Mike Leiba, President of GreenSlate.

GreenSlate's advice: closely read your service agreement with your payroll provider; the payroll company typically is defined as an independent contractor of the production— and it likely states that it is indemnified against legal action. In other words, a close read of your payroll service agreement will make clear that the liability for proper payment, taxation, and management of employees remains with the producer. Be sure to seek legal counsel to review your payroll company service agreement if you have concerns or questions.

“Whether a smaller company with a handful of productions or a larger company with dozens of development projects and series, it is important that production companies understand the actual benefits of engaging a PEO and the implications of classifying contractors and employees," said labor and employer lawyer and NPACT Counsel Patrick Butler of Kauff McGuire & Margolis LLP.