California EDD Confirms Loan Out Corporations Remain Legal in Entertainment

1 June 2024

The California Employment Development Department (EDD) has insisted that loan out corporations will not be prohibited in the state, after entertainment payroll agencies raised alarm over the weekend.

As Deadline previously reported, IATSE and several of the other Hollywood guilds issued memos to their members warning that the use of loan out corporations may no longer be permitted within the entertainment sector, following an audit from payroll agency Cast & Crew.

“We understand the great importance of California’s film and television industry and are proud of our work to support California’s employers and industries. We have received various inquiries highlighting questions about loan-out corporations’ ability to operate in California. As we have previously stated, EDD is not taking action to ban these companies in California,” the statement read.

The EDD added that, as one of the nation’s largest tax collection agencies, “our commitment is to ensure these taxes are collected according to state law.”

“We will continue our communication with industry representatives to ensure their concerns are heard and understood,” the statement continued. “We are optimistic that this dialog will help bring further clarity and information for the benefit of everyone who works in one of California’s most iconic industries.”

The statement did not clarify why Cast & Crew, as well as other payroll agencies that service the entertainment industry, had received directive that the EDD would no longer be accepting loan out corporations, if that is not the case. Deadline has reached out to the EDD for additional comment.

Industry Concerns

According to the notice from Cast & Crew, the EDD would be cracking down on the use of loan out corporations to instead require employers to pay for services directly to contracted employees.

As a result, the EDD would be sending notice to all impacted loan out corporation owners to audit the unemployment insurance and other taxes on the compensation that Cast & Crew paid to the loan out entities.

Several guilds issued statements over the weekend advising that they were looking into the issue.

Loan out corporations are typically single-owner LLCs or S-Corps that allow a contracted worker to provide services as an employee of their own corporation, rather than receive payment directly as an individual. They can then pay themselves a salary, and even contribute to a retirement account on their own behalf.

While loan outs aren’t exclusive to the entertainment industry, many film and television workers utilize loan out corporations as a way to protect them against liability and receive tax breaks on business expenses related to the job.

If you are impacted by this change, please contact the Deadline tip line to tell us more.

loan out corporations

What are the implications of the California Employment Development Departments stance on loan out corporations?

The California Employment Development Departments stance on loan out corporations implies stricter scrutiny and potential reclassification of independent contractors as employees. This could lead to increased payroll taxes, compliance costs, and legal challenges for businesses utilizing such arrangements.

Can loan out corporations continue to operate in California despite concerns from entertainment payroll agencies?

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