AB5 – A Venue’s Dilemma
There’s been a lot of talk recently about a new law in California, Assembly Bill 5 (or AB5), which as of January 1 changed the rules around how to define a contractor versus an employee. This has caused a lot of confusion and frustration for music venues, events that hire bands, and musicians alike because a lot of bands and entertainment have historically been hired as 1099 contractors. With the new law, there is now a very strict criterion about defining contractors, and the rules can be somewhat confusing.
3 Point Test
Is the work to be performed by the contractor fundamentally different than the primary work of the person or company doing the hiring?
So how does this affect bands and music venues?
- If you operate a bar or restaurant, your primary business is food and drink service, so hiring a band is fundamentally different than what you do – should pass the primary test
- If you are a local city, county, major event or festival organizer, what you do is event organizing and not entertainment, so hiring a band is fundamentally different than what you do – should pass the primary test
- If you are a music-only venue, music is what you do, so hiring bands could be seen as a non-contract hire, requiring the band to be employees.
- If you’re a venue, hire a band that’s formed as an LLC or a corporation, which helps to clarify the venue-to-band relationship as business to business, not a contractor. This is not a cure-all, but
- it helps establish that you’re hiring from business to another business and
that the band formed as an LLC or a corporation is taking all of the risk related to its hiring practices
For example, if you hire a band that is simply operating as a schedule C business or even under a simple contract, and they in turn and hire band members to fill certain positions (e.g. drums, guitar), it’s uncertain whether you carry any responsibilities for bands potential employees. Hiring an LLC or Corporation, for example, your risk for the transaction is between you and the Corporation/LLC, removing any responsibility from you for how the band operates.
- Avoid 1099 payment structures for your bands or entertainment. Again, not a cure-all to prevent any risk, but issuing 1099s, which shows up on your tax returns, and potentially creates red-flags for the state of California to audit whether these legitimately contractors or should be employees. Most LLC or corporate bands can invoice you, providing a standard business-to-business transaction, that shows up as a standard expense on your taxes.