Special Report: Payroll
EmptyTalk to the heads of the entertainment payroll services and they'll say the biggest misconception about them is that they merely calculate time cards and cut checks.
The reality is that the payroll business has long since diversified into other areas, including software, labor relations and even extras casting. And, as runaway production has ramped up in recent years, the top shops have begun taking their show on the road.
"About four or five years ago, we recognized that with the number of states that were starting to add tax incentives, we needed to have more personalized service in (them)," says Markham Goldstein, president and CEO of Entertainment Partners, the industry's largest payroll company. "Every state is very different in terms of (its) rules and regulations."
To help sort them out, EP and other payroll specialists offer free tax-incentive consulting services for their clients and maintain databases that track the various rules, regulations and percentages -- no easy chore, given that about 40 U.S. states offer significant tax credits or rebates.
"We have a whole incentive department updating, because every day, some state changes something," says Ed Spiegel, president and CEO of Cast & Crew Entertainment Services. "We have a tip guide online and we also provide a hard copy version three times a year. If anything comes up, we send out an e-mail to our clients."
Several of the larger payroll companies -- including EP, Cast & Crew and Media Services -- have opened satellite offices in runaway production destinations such as Louisiana, New Mexico and Michigan, as well as Toronto and Vancouver.
"Some states require you to have a presence there, but they don't require you to actually process your payroll there," Spiegel says. "They start off that way, then as the state gets going, they expect you to start processing the payroll there. So in some of these offices, there can be three people. But if there should be a rush of films, we'd have to send more."
To help productions maximize their in-state spend, and in turn their tax credit, two payroll players have established production-services companies in incentive states. Entertainment Partners has EPPS Purchasing, with offices in six states, and Cast & Crew recently purchased Media Cooperative, which has offices in five states.
"They're what we call 'qualified vendors,' " Goldstein says. "People can rely on our relationship and experience with a number of vendors and at the same time get the tax advantages."
Hiring local crew also helps pad a production's tax credit in most incentive states. But qualified workers are often hard to find in these places, which can generally trace their history as a production center back to the moment the legislature passed the tax credit. Mindful of this, a year ago Media Services decided to purchase the Boston-based staffing company Crew Star.
"It can find you a crew around the country and around the world," says Steve Bizenov, vp sales for Media Services. "It got us into the crewing area, and Massachusetts is a big incentive state, so it puts us on the map there as well." Although "the head office for the crewing has been Boston, we're spreading it out through our other two main offices (in Los Angeles and New York) so we can service the whole country more effectively."
EP has been involved in a more traditional form of Hollywood staffing since 1992, when it purchased Central Casting, the oft-referenced company founded in 1925 that specializes in extras, body doubles and stand-ins.
"That's probably more the creative side of our business," Goldstein says. "But the synergistic side is we also payroll all those extras."
The key source of synergy for the larger payroll companies is the competing lines of accounting, budgeting and schedule software they offer, which include EP's MovieMagic and Media Services' Showbiz.
"We're trying to help the industry from a workflow perspective," Goldstein says. "You can take elements from a Final Draft document and import (them) into our scheduling application," which in turn can be imported to budgeting, accounting and petty cash systems. It makes good sense, he adds, "because obviously there's a redundancy of data through that process."
As they've done with other areas of their business, payroll companies have tailored their software offerings to meet the needs of runaway productions. Cast & Crew bills the latest version of its PSL3 software as "the only production accounting software designed with production incentives in mind." EP has Virtual Production Office, a Web-based tool that gives users the ability to securely archive, deliver and update key production documents -- reports, memos, budgets, script drafts, etc. -- from any place at any time.
The software synergy not only streamlines the production process, it also helps cement client loyalty. Even in the fickle world of show business, most people are loath to abandon the computer program they know for one they don't, no matter how enticing the new features.
The additional products and services, from software to crewing services, also create additional revenue streams. And that's no small consideration, because while these companies collectively handle billions of dollars annually, they generally only get to claim a tiny fraction of it in fees.
The business model "is based on volume," says Marcia Jacobson, head of the Jacobson Group, which specializes in video-based productions such as awards shows (Oscars, Grammys, Emmys), live specials and reality TV programs.
Like everyone, payroll companies were hurt last year by the downturn in the economy. The demise of easy Wall Street money and the general tightening of credit has resulted in fewer independent films going into production and looking to hire payroll services. And those productions now need to be vetted more carefully to make sure they have the means to meet their financial obligations.
"The money has really dried up -- not for us, but for our clients," Jacobson says. Occasionally, "you end up trying to run a show when all the funds may not be in place. I'm dealing with one show like that right now and it's a complete nightmare."
If a production is affiliated with a major studio, it is typically given three to seven days to reimburse the payroll company after each pay period. Independent productions are typically required to pay a deposit in advance equal to two or more weeks of the estimated peak payroll, then deliver a payment covering the weekly payroll when the checks (or direct deposits) are scheduled to go out.
In addition to cutting the checks, a payroll service is also responsible for paying taxes and "fringes," which range from contributions to 401(k)s and union health and welfare programs to government-mandated liens and garnishments on an individual's income.
As far as the law is concerned, payroll companies are co-employers on a production, so they're not just holding the money, they're also responsible for on-set liability. They carry the workers' compensation coverage and handle any filed claims.
The larger companies have dedicated risk-management teams that evaluate each project and look for red flags such as dangerous stunts, water shoots or anything involving helicopters or airplanes. In most cases, it's all about determining the amount of coverage needed and how that will affect the price of the payroll company's services.
"I've been doing this for 15 years and I've probably only seen one show turned down, of the ones that I was dealing with," Bizenov says. "Most of the time, if it's necessary, you get more insurance."
If Jacobson, who runs a boutique firm with just 21 employees, deems the activities performed by reality show contestants to be too large a liability for her company to handle, she will request that the contestants be paid separately by the production company itself or by another, larger payroll service.
Why wouldn't they just use another payroll service for the whole show?
"It has to do with relationships," Jacobson says. "Ninety% of my clients have been with me 20 years."
Relationships, of course, are all about trust. And the payroll executives know their clients trust them to make things work.
"We want to protect your interests as a producer so in three years you don't get a call from the government saying, 'We're going to audit you and you owe us tons of dollars,' " Bizenov says.