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Artists: Employee or Contractor?

The Washington State Arts Alliance and Washington Volunteer Lawyers for the Arts held a seminar on the appropriate use of independent contractors. The following notes are from the seminar. This information is intended for general information only. You should seek professional advice related to your specific situation, including any legal advice that may apply. The City of Seattle makes no representation that the information is complete, accurate or current.

Employment Security, workers' compensation and the minimum wage laws were set in order to protect the rights of workers. The current dilemma seems to be that while most arts organizations want to pay artists, they can't afford to pay artists as employees. So what can arts organizations do to pay an artist what they can afford, while meeting legal obligations? Here are some suggestions and information that might help.

Department of Labor & Industries (L & I):
Washington employers must provide workers' compensation coverage for most workers. This coverage ensures that workers are protected in case of an injury on the job. Exceptions include workers who are independent contractors. Individuals are considered independent contractors if:

  • They are not employed by the theatre or production company, but have contracted with the company for a specific performance or series of shows because of their particular talent or ability.
  • They are not supervised or controlled by the company in order to complete their contract.

How does an audit get triggered?
L & I does random audits each year, but the percentage of companies chosen this way is so low, that your chances of being audited are very slim. For most arts organizations, an audit is usually triggered if someone working for you is hurt on the job and files a workers' compensation claim and L & I finds no record of your company paying any premiums for that person. Even if you had workers sign contracts stating that they are independent contractors and that your company is not liable for any injuries on the job, contracts won't hold up against the workers' rights laws. The employer is liable if workers are not taking care of their own taxes.

Independent Contractor? Employee? Volunteer?
Each case may be different, but in general, because directors, actors, stage managers, stage hands, tickets sales and front of house staff, and production crew are usually:

  • supervised,
  • directed what to do and how to do their jobs, and
  • have to work at specified times and at specific locations as directed by the arts organization or company, they cannot be classified as independent contractors.
    If the company is non-profit*, and these workers are volunteers, then the company does not need to pay L & I premiums for them. If the company is non-profit and is paying these workers, then they do need to pay for workers' compensation. For-profit companies have to pay L & I premiums whether the worker is paid or is a volunteer.

Designers and other artists may possibly qualify as independent contractors as long as they are allowed to set their own hours and are not supervised but are simply given a deadline for the completion of their work. Independent contractors are in business for themselves and therefore should be taking care of their own taxes. The employer should make sure independent contractors are licensed and have their own UBI # (get copies as proof).

Is there a way to pay artists an honorarium and still be legal?
No. Most artists working for an arts organization must either be treated as an employee receiving a salary or being paid at least minimum wage on an hourly basis, with all taxes, unemployment security and L & I coverage paid, or they must be considered a volunteer and receive no pay at all.

However, the company may offer to cover certain artist expenses rather than giving the artist an honorarium. There are limits to this option, but it should work for most of the smaller companies in Seattle.

To calculate the maximum amount artists can receive for travel reimbursement, the following formula can be used for each artist:

[Roundtrip distance from artist's home address to the arts organization (or wherever work is taking place)]
x
[# of trips artist must make to complete the job]
x
[IRS standard mileage reimbursement rate, 48.5¢ for Sept. 2005]
=
[Maximum amount that can be paid to an artist for travel reimbursement]

You may give the artist an amount that is less than the maximum amount calculated, but the company cannot give the artist more than that maximum.

If the company is audited, they will need to keep records of how the travel reimbursement amounts were derived.

A company may also reimburse artists for any unusual items they had to purchase in order to do their work for the company. But the company must be able to demonstrate that the artist cannot get any continued benefit from what was purchased. For instance, it might be easier to make a case for reimbursing an artist for buying hair whitener or fangs to play a certain role. But if the artist bought new shoes for a role, but could continue to use those shoes after the production is over, reimbursement for the shoes might not be allowable. The company should keep a copy of any receipts for verification.

The company will need to be clear with the artists that they are volunteers and that the stipend they are receiving is a travel or expense reimbursement and not an honorarium.

Since it is still possible for volunteers to get hurt on the job, to be on the safe side you can classify workers as volunteers and go ahead and pay for their L & I coverage so that they are protected in case of injury. By doing this, you wouldn't be obligated to meet the State's minimum wage laws, since they are still considered volunteers.

What about giving artists gift certificates or gift cards instead of pay? Would that be allowable without having to pay L&I; coverage?
No, since these have monetary value, they qualify as income.

What about interns?
It doesn't matter what title you give to a worker, paid interns must be covered under L & I. Unpaid interns qualify as volunteers and therefore don't need coverage if the company is non-profit. If the company is for-profit, interns must be covered whether they are paid or not.

For more information: Dept. of Labor & Industries, (360) 902-4817

Employment Security:
Employment Security makes sure workers are covered for unemployment if they're eligible.

Basically, the same rules apply for determining if someone is an employee or independent contractor. If someone is performing a service for pay, then they are considered an employee. Exceptions:

  • Non-profits** whose missions are religious or educational.
  • An entertainer is exempted if the entertainer is working for an organization whose mission is different than the service being provided. For instance, singers singing for a tavern or at a sports field could qualify for the exemption if the tavern is in the business of selling drinks not providing entertainment, and if the sports field is in the business of selling tickets for sporting events, not for concerts. Singers for a choral company, however, would probably not be exempt since most choral companies are in the business of selling tickets to events featuring singers.

How does an audit get triggered?
Employment Security does a random audit of only two percent of all businesses each year, so your chances of being audited are low. For most arts organizations, an audit is usually triggered if someone filing for unemployment lists your company as one of the places that they worked. Most of their unemployment may come from other sources, but if they list you and Employment Security has no record of you paying taxes for that person, then you may get audited.

When do I have to pay employment security?
The simple rule of thumb is that a person qualifies for employment security if you pay or compensate him/her. Unlike L & I, Employment Security does not look at whether minimum wage laws are being met. Non-profits** are exempt from having to file employment security for interns.

So, the primary choice an arts organization has is, if they compensate someone, they should cover that person's employment security, or else, they need to treat that person as a volunteer.

For more information: Employment Security, (206) 706-3801

Washington Minimum Wage:
For more information on minimum wage law questions, please go to: http://www.lni.wa.gov/WorkplaceRights/Wages/Minimum/ or call (360) 902-5552.

* A company does not need to be a federally recognized 501(c) 3 non-profit. Since L&I; is a state agency, incorporation as a non-profit corporation in the state of Washington is enough to meet L&I;'s non-profit status requirement.

** As a federal agency, Employment Security does require that an organization be an IRS federally recognized non-profit in order to qualify for this exemption.

TIPS FOR GREAT GRANTWRITING
YOUR ORGANIZATION AND THE IRS
GET THE WORD OUT ABOUT YOUR ARTS EVENTS
AMERICANS FOR THE ARTS BOOKSTORE
ARTISTS: EMPLOYEE OR CONTRACTOR?
MUST READS FOR ARTS MANAGERS - PART 1
MUST READS FOR ARTS MANAGERS - PART 2
ORGANIZATIONAL MAGNETISM: PART ONE
ORGANIZATIONAL MAGNETISM: PART TWO
ORGANIZATIONAL MAGNETISM: PART THREE
OVERCOMING BARRIERS TO BOARD DIVERSITY
TIPS FROM THE FIELD
MORE TIPS FROM THE FIELD
PLANNING EFFECTIVE MEETINGS
BUILDING EFFECTIVE BOARDS
THE PRESS KIT
MOTIVATING VOLUNTEERS
DELIVERING OUTSTANDING CUSTOMER SERVICE
Shown: Seattle Youth Symphony. Photo: Colleen Boyce.
Seattle Youth Symphony.
Photo: Colleen Boyce.
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