Newsom signs Union-backed bill on entertainment industry lending

Gov. Gavin Newsom on Monday signed a union-backed bill that protects loan companies that were threatened by a state audit earlier this year.

Actors, writers and crew members are generally not treated as employees of the major studios. Instead, they get paid through their personal service companies, which “lend” their services to the studios.

This setup, which has been around for decades, allows creatives to deduct agent and manager commissions and other expenses from their income taxes. But in May, the arrangement came into question when the California Employment Development Department conducted an audit of Cast & Crew, one of the industry’s largest payroll companies.

The EDD had received a flood of unemployment claims during the COVID-19 pandemic, including from entertainment workers sidelined during an industry-wide shutdown.

In response, the agency conducted audits to determine whether loan companies had actually paid payroll taxes to support the unemployment insurance system as required by law.

Cast & Crew hands out checks to lending companies on behalf of its customers, the studios. During the audit, the EDD took the position that Cast & Crew – and not the loans – should have paid the payroll tax.

Cast & Crew warned Hollywood unions in May that the EDD was essentially ignoring the lending structure and treating workers as employees of Cast & Crew. The unions, in turn, warned their members that the EDD wanted to “fundamentally transform” the way the industry does business.

That caused even more alarm, prompting the EDD to issue a statement saying it was “not taking any action to prohibit the making of loans,” but rather trying to ensure all taxes were collected.

Newsom’s office and industry stakeholders then spent the next few months behind the scenes working out a solution.

Sen. Anthony Portantino, D-Burbank, a key industry ally in Sacramento, introduced and passed a bill, SB 422, in the final days of the legislative session in August. Newsom signed the bill Monday, the last day for action.

The bill codifies the lending structure into state law. The bill also makes it clear that lenders – and not payroll companies – are responsible for paying payroll taxes. To facilitate tax collection, the bill requires payroll companies, such as Cast & Crew, to submit quarterly reports to the EDD on loan payments beginning in 2026.

In a statement supporting the bill, a coalition of Hollywood unions said it would “prevent any upheaval of our industry at a time when we are facing massive upheavals and the unemployment of many of our members.”

Cast & Crew executives told the story Variety in May that the audit affected about 2,000 loan companies. At the time, Cast & Crew challenged the EDD decision in closed court before an administrative law judge.

It was expected that the 2,000 companies would receive a message informing them of the audit. However, that never happened, as stakeholders instead worked out a legislative solution to the problem.