California Governor Gavin Newsom has signed a union-backed bill aimed at safeguarding entertainment workers' use of loan-out companies following concerns raised by an audit earlier this year.
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| Gavin Newsom Randy Shropshire/Getty Images |
Newsom’s office confirmed the governor’s approval of SB 422, introduced by state Senator Anthony Portantino, on Monday. Supported by the Entertainment Union Coalition — which includes the California IATSE Council, the Directors Guild of America, SAG-AFTRA, Teamsters Local 399, and LiUNA! Local 724 — the bill establishes that loan-out companies are the official employers of entertainment workers who establish and operate under them, making them responsible for paying employer taxes.
The legislation also prevents entertainment payroll companies from being recognized as employers of loan-out companies or their employees. Under the new law, payroll companies must file quarterly reports to California’s Director of Employment Development, detailing payments made to loan-out companies.
This law essentially reaffirms the long-established practice of using S-Corporations, C-Corporations, or LLCs by entertainment workers who "loan out" their services to other firms. The Writers Guild of America West explained in an August 31 message to members, prior to the bill’s passage, that "loan-out companies will continue to operate as they have for decades." The legislation also ensures that loan-out employees retain the right to unemployment insurance benefits similar to other unemployed workers.
Many industry professionals, such as writers and reality television producers, use loan-out companies for corporate protections and potential tax advantages. DGA Western executive director Rebecca Rhine, whose union played a key role in drafting the bill, explained, “Loan-outs have been a part of our industry for decades, given the nature of transitory work with multiple employers and projects. This structure helps industry professionals manage their work life.”
The push for the bill began after California’s Employment Development Department (EDD) initiated an audit of major payroll provider Cast & Crew in May. Cast & Crew warned industry workers that the state had challenged the practice of paying wages through loan-out companies instead of paying the company owners or shareholders directly as employees of the payroll providers. Cast & Crew stated they were “actively contesting” the EDD’s decision and working with unions and entertainment companies, predicting it would become an “industry-wide issue.”
At the time, the EDD clarified that it wasn’t planning to ban loan-out companies in California and was in discussions with industry representatives.
Entertainment unions engaged with the governor's office following news of the audit, collaborating with Portantino to address the issue through legislation, said Rhine. The WGA West, EDD, and Cast & Crew also contributed to the effort.
Rhine remarked that the law provides "clarity to our members, the state, and the industry regarding the role of loan-out corporations."
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