What are they?
It’s common practice for performers’ agents or business managers to negotiate an advance payment under an escrow agreement as a condition of employment. An escrow agreement is a contract, separate from a deal memo or SAG performer contract, which specifies the amount to be paid “upfront” prior to any work or travel taking place by the performer. The escrow agreement generally also includes guaranteed days or weeks of employment, the production company’s obligations for handling the payment, and any additional compensation requirements.
How to make advance payments
The preferred method of sending an escrow payment is via a wire transfer, either directly from the production account or from the deposit with the payroll company. The simplest way to send an escrow payment is to turn over all of the required paperwork to your payroll company and have them handle it from there. Then, the payroll house can calculate payroll taxes and other deductions before sending a wire. The performer’s payroll would then be processed on a weekly basis until the escrow agreement’s terms are met and employment ends.
The other option would be to send the escrow payment directly to the agency, without including the payroll house. Many producers/production companies opt for this method to get the payment out faster. However, this option is not recommended because the production company can end up “double paying” on withholding taxes or encountering other complications.
What can happen?
Example: let’s say you advance paid $10,000.00 to one of your SAG performers before setting up with a SAG payroll company. ABS takes on the project, and as the employer-of-record, needs to record the advance payment and pay out applicable SAG-AFTRA pension and health contributions and payroll taxes. Using the employee’s tax forms, ABS determines that $1,000.00 needs to be withheld from the performer’s pay to go towards state/federal taxes—meaning that only $9,000.00 should have gone to the performer as their “net earnings”. At this point, you are at the mercy of the agency or escrow payment holder to pay back the gross-to-net difference of $1,000.00. If you are unable to collect that back, you now have to pick up that cost and are out-of-pocket an additional $1,000.00.
Even if the performer has a loan-out corporation (typically not subject to withholdings), there can still be additional payroll costs (including loan-out withholdings in some States), so it is always advisable to consult the payroll company prior to making escrow payments.
Collecting the proper payroll forms
Before making an advance payment under an escrow agreement, there’s some employee paperwork you will want to have ready. The basic tax documents are a W4 Form and an I9 Form for W-2 employees. If you are hiring a performer who has a “loan-out” corporation, a W9 form and articles of incorporation will be required instead. You will also need a copy of the performer’s contract or deal memo and a signed escrow agreement prior to sending any funds to a performer’s agent or business manager.
Avoid the hassle, speak with a payroll professional
Sending an escrow payment should be a straightforward process—but when the payment is not done correctly, it can create a lengthy procedure to account for your payroll considerations after-the-fact. Returning to the agency at the end of production with a bill for taxes not withheld poses a major problem: the money is often already gone by this point. This situation can put strain on the relationship between production companies and the performers they hire, as well as any other involved parties.
You can avoid this trouble by working closely with your payroll company to ensure taxes are properly withheld before sending escrow payments. It also helps ensure a smooth experience to collect the proper paperwork needed at the beginning of the process.
ABS Payroll is committed to walking our clients through advance payments with as little hassle as possible. Please speak with your payroll contact or any one of our knowledgeable staff members if you have any questions.