by STEVEN LEIGH MORRIS
[dropcap]It[/dropcap] isn’t bad enough that California currently ranks 46th in the nation for arts funding, now the State’s Employment Development Department (EDD) is engaged in random audits of non-profit theaters which result in re-classification of workers from “independent contractor” to “employee” status. This change in policy, dating back to at least 2007, could impose on these theaters a bump of tens of thousands dollars per year in operating costs, thereby crippling their ability to continue operating. And unless some exemption in state tax policy can be created for the non-profit sector, it threatens the very existence of hundreds of non-profit organizations across the State.
The Shotgun Players has a 100-seat theater (The Ashby Stage) and rehearsal space. It operates with a combination of Actors’ Equity Association (union) member actors and non-union talent. According to Managing Director Liz Lisle, the theater is in the midst of an “exhaustive audit by EDD, which resulted in a claim by EDD against the theater for nearly $50,000 in State employment back taxes and penalties for the audit period 2010–2013.” According to Lisle, this was because EDD claimed that the theater had wrongly classified many workers — among them, directors and designers — as “independent contractors” rather than “employees.” Lisle insists that the theater classified the workers correctly, and that the State has misinterpreted how they and the theater industry operate.
The theater, represented by an attorney from California Lawyers for the Arts, has been working through an appeal process based on clarifying theater worker job descriptions through individual case statements for the past two years. In the meantime, its tax liability keeps clicking upwards due to late penalties and interest.
CASA 0101 has a 99-seat theater on First Street in Boyle Heights, and a studio space across the street. Throughout the years it was being investigated, the company had been operating under L.A. County’s (recently suspended) 99-Seat Theater Plan. This plan was essentially an agreement between Actors’ Equity Association (the national actors’/stage managers’ union) and its actors, permitting those actors to volunteer at registered theaters of under 99-seats in exchange for expense-reimbursement stipends of $15/performance. State documents reveal that CASA 0101 has been on the EDD’s radar since 2007. Executive Director Emmanuel Deleage said that the theater received an audit notice in October, 2015, and was subsequently notified by EDD that it owed $7,000 in State employment back taxes for the prior three years. While the theater is appealing the decision (also with representation through the California Lawyers for the Arts), the fine has risen in the last two months by an additional $1,000 from late penalties and interest. As in the case of Shotgun, EDD is insisting that CASA 0101 misclassified its actors as “independent contractors” (though they were technically “volunteers” under the 99-Seat Plan), rather than as “employees.”
The “employee” classification, which requires the filing of a Federal W-2, carries a considerably higher tax burden on the “employer” than does the use of “independent contractors” who, for earnings of over $600/year, require the issue of Form 1099 and carry most of their tax burden themselves. Additionally, with the “employee” classification, the State minimum wage (currently $10/hour and slated to rise to $15/hour by 2022) kicks in.
Though falling under the same general rubric of how to classify workers, the two cases have different nuances. If the EDD’s Shotgun ruling prevails, the implications for California’s mid-size and larger non-profit theaters could be devastating.
There is no direct equivalent of the 99-Seat Plan in Northern California, and the very notions of volunteerism and reimbursement stipends has not been part of the equation in the way Shotgun Players has done business in the three years for which it’s being fined. Instead, the theater operated under the terms permitted by Actors’ Equity Association for theaters of its size. Some of its actors were hired with AEA contracts, which carry stricter scheduling requirements for both employee and employer, than agreements with the non-union actors. And that contradiction came to burn Shotgun Players.
According to the State’s Employment Determination Guide:
“The basic test for determining whether a worker is an independent contractor or an employee is whether the principal [employer] has the right to control the manner and means by which the work is performed. When the principal has the “right of control,” the worker will be an employee even if the principal never actually exercises the control. If the principal does not have the right of control, the worker will generally be an independent contractor.”
Explains Lisle, “When there are two people standing on stage, doing the same work, it’s difficult to make a case for different classifications between them based on professional experience.”
This is among the reasons that Lisle has thrown in the towel trying to defend the notion that her non-union actors are independent contractors. She is instead focusing her efforts to keep designers and directors out of the “employee” pool. “Because they’re clearly independent contractors,” she insists.