by JULIO MARTINEZ
evening, a small but focused contingent of Los Angeles theater professionals gathered at Casa 0101 Theater in Boyle Heights to listen to and take part in a panel discussion, titled Our Theatres & The Law, presented by LA STAGE Alliance (LASA) and California Lawyers for the Arts. The participating panelists were James C. Counts II, CPA CTFA (Certified Trust and Financial Advisor) — who, since 1993, has been the liaison for the CPA Society to the California Employment Development Department (EDD) — and Andrew Turney, a partner in the law firm of McDermott Will & Emery LLP, based in Century City. Turney has also performed pro bono legal services for Casa 0101. Moderating the panel was Steven Leigh Morris, Executive Director of LASA.
The principal subject of discussion was the recent actions of the EDD, which has audited three California not-for-profit theaters — LA’s Casa 0101, Sacramento Theatre Company and Berkeley-based Shotgun Players — determining that staff members, designers and performers of these companies were misclassified as “independent contractors” and should have been counted as “employees.” The appeal process against EDD’s ruling was chronicled in Steven Leigh Morris’ @ This Stage feature, published on May 16.
In his opening remarks, Morris brought the painful fiscal ramifications of the EDD’s actions to the fore, reading from an SOS e-mail he received earlier this year from the Shotgun Players, which stated, “We have undergone an audit from the EDD and the results have been brutal. We have been ordered to pay $50,000 in back taxes, plus penalties for the last three years, because of the way we were alleged to have misclassified workers.” A few months later, LASA received word that Casa 0101 was going through an audit due to similar circumstances.
The general topic under discussion centered around three questions: What causes an audit? Is there a relationship between EDD and the IRS, and very possibly AEA (Actors’ Equity)? And how can artists and theaters protect themselves from being stung in this way? James Counts readily admitted that he knew nothing about the entertainment industry. He got a huge laugh from the assembled theater folk when he innocently asked, “What’s Equity?” But he was adamantly determined that everyone understood the need to “get it right” when dealing with government agencies — the EDD in particular. He clarified, “Non-profits do not pay fines and penalties. Those that cause the problems pay the fines and penalties, defined as the officers and directors.” There was a noticeable rustle as he pointed to the audience members.
Andrew Turney clarified the different terms that become muddied in their execution: volunteers, independent contractors, employees, stipends. As examples were put forward, Counts appeared noticeably doubtful. He explained, “If you have a volunteer or an independent contractor that comes into your theater to do a specific assigned task and then goes home, you are in compliance with EDD. But once he or she starts doing a series of tasks under the direction of a superior, then that person can be classified as an employee.
At this point, a voice from the audience shot out. “You just described exactly what an actor does, a series of tasks on the direction of a superior.”
Counts shrugged. “You’ve got a problem.”
On the subject of stipends, an audience member stated, “Stipends did not originate with the theaters. When Actors’ Equity initiated the 99-Seat Plan, it also mandated and regulated the payment of stipends to actors, based on the number of performances. That was imposed on the small theaters.” It was put forward that actors who are performing under the 99-Seat Plan are not working for stipends, which are minuscule at best. They are in essence working as volunteers.
Counts made the effort to suggest safeguards that probably should be followed to reinforce someone’s claim to be a volunteer rather than an employee. “To be a volunteer worker who occurs expenses that are reimbursed, he or she needs to submit an expense report based on actual expenses, providing receipts. The business reimburses based on the actual expense. If you are receiving a stipend, you can help avoid a potential conflict by also doing an actual expense report to warrant what you are receiving. I know it is a problem. I know it is more work and bookkeeping, but under normal tax situations, what you are paid as a stipend can be listed under reimbursed expenses of a volunteer rather than inadequate wages of an employee.”
Counts also pointed out that EDD has very few dealings with the theater industry. It does not have experts in this field. An EDD auditor reads a statement from an officer of the theater stating, “They give directions to an artist.” In the EDD representative’s mind, that is a clear statement of an employer/employee relationship.
Counts pointedly addressed the audience. “A lot of what will need to be done, if there are any more audits, is make sure your representatives are knowledgeable about your industry and be prepared to educate that auditor. They need to be able to explain the 99-Seat Plan to an EDD auditor who is totally unaware of the terminology you use in your industry.” Counts also cautioned, “Don’t ever initiate contact with the EDD. Once you do, every thing you say can be used against you or your organization.”
Counts and Turney concluded that one of the best things a theater community like Los Angeles can do is get governmental/legislative support — that California governmental leaders are great supporters of this state’s entertainment industry. They warned not to be timid about approaching civic leaders and state legislative representatives — that these are the individuals who can affect the necessary changes in order for the theater industry to viably move forward and, hopefully, prosper.