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Employee vs Independent Contractor: Where Do You Belong?

If you’ve worked professionally as an artist and made any kind of money via your trade, you were likely paid in one of two ways: as either an employee or an independent contractor. Let’s talk about what it means to be an employee vs an independent contractor in the arts, who typically falls under each category, and what it means for your taxes.

The line between these two classifications can sometimes get a little blurry, but in a nutshell an employee is a worker who is told to report to work to a specific location usually in a set amount of hours.

Meanwhile an independent contractor is a worker who is hired to work on a project, but theoretically can complete their work per their own schedule, and often from a home office or whatever location the contractor chooses.

Now here’s a funny example- an actor who reports to their Broadway theater 6 days per week is an employee, as they’re being told when and where to report to work, on a set schedule.

Now let’s say we have a Sound Designer working on that same Broadway show, and throughout pre-production and tech rehearsals they are being paid as an independent contractor. Two folks working on the same show are being paid two different ways. Why? Let’s dive in!

Workin’ 9 To 5, Five Days A Week, Fifty Weeks Per Year

For most actors, dancers, musicians the designation you’re going to come across most often is Employee.

That’s because as we’ve noted, you’re being told when and where to perform your work. Actors Equity Association has negotiated deals with the Broadway League to create deals and terms of “employment”. When an actor is hired to perform in a live theatrical event, they are agreeing to begin a term of employment. This term might last as long as the show itself runs, or if a long running show, then for a defined period of time such as 6 months, 1 year, and so on.

But beyond what AEA has negotiated, if an employer tells you when to show up for work and how long you’ll be there that day, you’re an employee.

You’ll know for sure you are an employee vs independent contractor because every week when your company manager hands you that sealed paycheck, you’ll open it up to find that there is money missing!

employee vs independent contractor

Ok, it’s not missing. But it does feel that cruel sometimes.

You’ll look at your paystub to see a breakdown of taxes that have been withdrawn from your paycheck and sent directly to the government.

All sorts of things are deducted from your paycheck. Federal, state, and local income tax, unemployment taxes, Medicare taxes, and social security taxes to name a few. We’ll get into what that means in just a bit, and how the government calculates those totals.

Being an employee can have its advantages though. Take that unemployment insurance for example- because you are contributing regularly to unemployment insurance while employed, if/when the time comes that you aren’t employed (the simple reality of a career in the performing arts) you can access that program because of the taxes you paid as an employee. You might not even know you paid those taxes, since the money never even hits your bank account.

The Contractor Way

The major other way one might be paid for professional work is as an independent contractor. In the arts, folks working in this way will include directors, choreographers, designers, lawyers, press agents, not to mention management offices, producers, and even authors.

A reminder that an independent contractor only works as required, usually on their own schedule. For example, a scenic designer is an independent contractor because while they may work off of deadlines as to when their designs are due to production management, it’s entirely up to them how to schedule their time and effort in creating those designs before the deadline.

And what happens when that scenic designer opens their paycheck from the same company that is paying the actors as employees vs independent contractors?

Well because that scenic designer is an independent contractor, there is no money missing! They are expecting a check for let’s say $1,000, and there is $1,000 staring them back in the face.

What?!? That sounds sweet! I want that!

Wait just a minute my creative financiers. Consider the following statement.

Everyone pays taxes. (Well, the space billionaires have their own thing going on, but that’s a whole different blog post). For our intents and purposes, everyone pays taxes.

So what does that mean for the independent contractor?

Well it’s not a matter of *if* they’re going to pay taxes, it’s just a matter of *when*.

An independent contractor will file their taxes at the start of the following year, and when they do so the government is going to look at that total amount of money the contractor made and say to them, “You now owe us X based on your earnings.” This taxation goes towards covering many of the same tax liabilities the employee will pay- federal, state, social security, and so on.

It’s incredibly important as an independent contractor to set the proper amount of money aside for your end of year tax bill. I like to do so in a completely separate savings account, so I know exactly what that money is earmarked for and I don’t mistakenly use it for something else.

What’s the benefit of working and being paid this way? Well as an independent contractor you are in essence your own business. You can deduct more expenses when filing your taxes, because more of your spending pertains to how you run the business of you.

Finale Thoughts

I hope this post has been an interesting overview for you about what it means to be an employee vs independent contractor.

We’re just scratching the surface here and I encourage you to go out and do some more research on these topics. There’s some grey area in between these two terms. A lot of actors are “self-incorporating” these days and choosing to be paid that way, as an independent contractor and not an employee.

The last lingering question for now might be, “well how exactly do I know how much I’m supposed to pay in taxes each year?”

The basic answer, it’s going to depend all on how much money you earn in a year. Your tax rate scales up based on your income.

A Broadway ensemble member being paid the minimum on production contract as an employee vs independent contractor is making about $100,000 annually.

In New York, you’ll owe state tax in the amounts of 5.97% up to $80,650, and then you’ll owe 6.33% on anything above that up to $215,400.

Meanwhile the federal tax rate in 2022 for anyone making between $86,376 and $164,925 is about 24%. (Well 22% up to $86k, and then 24% on any amount up to $164k).

Does this all feel a bit complicated? IT IS. IT’S GOING TO BE OK, I PROMISE.

Wading into the world and waters of taxation is going to be super complicated. Always talk to a tax professional if you need to.

But also do some research in the meantime. I’m willing to bet you have it in you to get a basic handle on your own tax estimates and putting that money aside as a contractor will put you in a much better position come filing time every year.

Any questions on the differences between being an employee vs independent contractor? Drop a comment below or feel free to write me directly!

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