What changes in the budget
Take an actor earning $12,000 for two weeks on a union picture with a 22% pension and health contribution. Compare paying her as an employee with paying her loan-out:
| Line | As employee | Through loan-out |
|---|---|---|
| Fee | $12,000.00 | $12,000.00 |
| Employer FICA, 7.65% | $918.00 | $0.00 |
| State unemployment, workers' comp, payroll fee (example 4%) | $480.00 | $0.00 |
| Union P&H, 22% | $2,640.00 | $2,640.00 |
| Cost to production | $16,038.00 | $14,640.00 |
The difference is $16,038 - $14,640 = $1,398. The loan-out's owner pays her own payroll taxes out of the $12,000, so she's not getting a better deal; the tax cost moved to her company. Some payroll companies still process loan-out payments and charge a smaller handling fee, which belongs in the budget.
Why people use them
Loan-outs are most common for actors, directors, writers, producers, and senior crew like DPs and editors. Owners use them for liability and tax planning reasons their accountants advise on. For productions they're neutral to slightly cheaper, but they add paperwork and some risk.
The risks for production
A loan-out needs to be a real, active company. If the company isn't in good standing, or the individual is really working as a regular employee under production's control, a state agency or auditor can treat the person as the production's employee, and production can owe the taxes it didn't pay. To head that off, payroll companies and production accountants ask for current documents before the first payment.
Workers' comp is another gap. If a loan-out owner is hurt on set, the production's comp policy may not cover them unless the loan-out carries its own coverage or the policy includes them, so get the loan-out's certificate of insurance or confirm coverage with your broker.
Some states also require production to withhold state tax on payments to out-of-state loan-outs for work done in that state. Ask the payroll company before paying a loan-out for work in a new state.
Deal memo language
The deal memo should name the loan-out, its EIN, the individual f/s/o, and whether the rate is inclusive of everything or whether production pays union benefits on top. It should also include the inducement. A crew deal memo template has a loan-out block you can use.