How Can We Process Production Payroll Without Paying The Industry Services’ High Fees?
The industry payroll services are hell-bent on keeping us chained to their drug of choice – price gouging for worker’s comp, overcharging for SUI and multi-project fringe capping. They accomplish this by pushing software that is antiquated, broken and built decades ago. They also do it by hiding the true cost of their handling fees in the fringes that executives pay without really knowing how they are calculated or know what the payroll services’ actual costs are.
The business they are running is dishonest and in my opinion basically thievery. If they were running a transparent and honest business: 1) we would know when an individual hits the SUI cap in a year (across all production companies employed by a payroll service); 2) we would pay the payroll service’s actual SUI rate and; 3) they would offer a worker’s comp package that is competitive with the AAA carriers or allow us to bring our own worker’s comp and leave theirs out of the cost equation. If they won’t disclose these items or make a change as described we have no choice but to abandon the services. I have tested the possibility and it saved the producer a ton of cash on a relatively small show.
What Do We Get From Using An Industry Payroll Service
The main features that entertainment industry payroll services provide are; 1) remittances to the state & fed; 2) PH&W contributions to the guilds and unions; 3) labor legal; 4) accounting software; 4) state & local payroll processing. None of that is rocket science.
Remittance To State & Fed
If we were to use any of the traditional payroll services like ADP or Paychex, they are going to charge us a flat fee on the order of $4 per month for each employee. They are NOT going to charge us a percentage of payroll like the entertainment payroll services do.
Entertainment payroll services essentially offer the same services that traditional payroll services offer. So, why should they charge us a percentage of aggregate payroll? We really should be paying them a flat fee instead. At the end of the day, total production payroll spend runs into the billions of dollars (let’s say the estimate of $15 billion to $20 billion per year is correct) and the payroll services are collecting anywhere from 4% to 6% of that for themselves.
Let’s consider that for a moment. If a company like Entertainment Partners processes $11 billion in payroll (a number I once heard the CEO bragging about in 2014ish) and let’s assume they collect 4% in fees, markup and charges, that’s over $400 million and they are not doing anything exceptional that cannot be automated using technology that has existed for over 2 decades. If we break it down, they make payments, issue W2’s, provide software, remit fringes to the State, the Fed, the unions or the guilds when appropriate. That’s not extraordinary and not something that isn’t available using other service providers or systems.
For years, I have made contributions directly to SAG and WGA for writers and actors on projects. We manually fill out their forms, because it’s not complicated, and we’ve built Excel spreadsheets to automate most of those processes. This is not brain surgery; the requirement is simply contractual and can be automated with an excel sheet like the one the WGA provides.
Payroll services also provide legal support for a show when the account is initiated. In some cases, you may never use any additional labor legal because you’ve done it enough to know the standard processes and systems. Legal should be billed on an hourly rate. Issues like how much labor legal to budget when reviewing a contract from any of the guilds or unions can be an unknown, but that doesn’t have to be the case. Find a lawyer who specializes in labor legal and spend two or three hours getting advice on how to solve a problem, a conflict, or an edge case that you’re experiencing. Spending $5,000 to $8,000 (that is a very comfortable estimate for labor legal) in addition to what you would normally budget on a show to deal with these edge case problems is a far cry from the thousands or hundreds of thousands of dollars you would spend paying 4% to 6% of your gross payroll to a payroll service that comes with labor legal you might never need.
All the things the entertainment payroll services provide are accessible through any vanilla payroll service. The only service they offer that is specific to entertainment is the very specific software – it produces a Cost Report. But the software is buggy and outdated compared to high-end software in the modern financial industry. So on balance their software is crap that can be had from any other resource and it will be much better and a lot more modern. Imagine a world where you never cut a check and use a service like Bill.com to automate check cutting and payments after a production accountant and UPM approve and digitally sign the checks.
Multi State and payroll at the flip of a switch
Production companies often don’t know that they can get set up in a state, anywhere in the Union, within 24 hours or less. When the entertainment payroll services started in the eighties, it took weeks to get payroll set up when shooting a new show and especially in another state. Things took time, sometimes weeks, to set up with a state and the alternative that saved a ton of time was picking up the phone and calling an entertainment payroll service to be shooting in a day or two. Now with technology and the internet, we can get set up independently with a traditional payroll service and in a day or two be shooting, in any part of the country, in a matter of hours – not weeks. It’s all online and it can be setup in a matter of hours.
The notion that it takes a long time to set up payroll in another state is not true anymore. Getting on the phone with an entertainment payroll service, in order to start shooting in a new state by tomorrow, is no longer a selling point of the industry payroll services. These methods made sense before the Internet became ubiquitous and before the Secretaries of State, in every state of the union, allowed us to set up and start processing payroll in a state within a matter of hours. The production and finance executives in the industry, however, continue to use this outdated system even though it’s ripping off the producers.
The excess SUI collected by the payroll service and the expensive worker’s comp should be a practice that we put to an end. Payroll ought to tell us, and by extension bill us, based on their actual federal and state unemployment insurance rates. Telling us their actual SUI rates and selling worker’s comp that is competitive is not dishonest and totally transparent. Burying margin, markup and fees into products where they are skimming a percentage of labor spend is, at its core, dishonest.
The ridiculous thing about what we producers choose to do – no one questions what the payroll services are doing. Everybody just blindly follows what people who came before them were doing without realizing they can use payroll services like ADP or Paychex, buy separate AAA Rated worker’s comp and make PH&W contributions directly and work outside of the industry payroll services.
We can beat up the payroll services for a lower rate and tinker around the margins, but I would simply abandon the thieves. It’s expensive, antiquated and dishonest. Look for a way of working outside of the entertainment payroll services and I guarantee that you will save a lot of money and have a lot less aggravation. Look for a consultant who can guide you through the process of working outside the dishonest practices of the industry payroll services.