Are Recording Studio Engineers Employees or Contractors (Part 2)?
This is part 2 of series on how to classify recording studio engineers as workers, here’s part 1 in case you missed it. Each part of the series will answer one question and provide guidance to help you decide. Your recording studio is paying audio engineers, specializing in recording, mixing, and mastering. Are engineers the recording studio’s employees or independent contractors?
What happens if the recording studio treats engineers and contractors when they’re employees?
Before making this mistake, contact a recording studio accountant. They can give you a good idea for whether the audio engineers in your recording studio are employees, or not. But, if you have already treated your engineers as independent contractors when they were employees, here’s the deal:
1. You may be audited by the IRS, if they believe you have misclassified your sound engineers.
2. Penalties of 1.5% of the engineers wages will be fined by the IRS. (Example: Your engineer is paid $50,000/ year by your recording studio, the penalty is $750) + 20% of the tax that should have been withheld (Using our example this penalty would be $765*). For this one engineer, you’d owe $1,515 in penalties.
3. Plus, you’ll still have to pay the recording studio’s portion of payroll taxes, totaling $3,825. Yes, all that. So, let’s ensure you do it right the first time, shall we?
*You really don’t care about the way I came up with the penalty numbers, but in case you’re curious: Using our example, you should have withheld $3,825 (7.65%x$50,000) from your engineer’s paychecks during the year. The penalty is 20% of what you neglected to withhold from their check =$765. See, I told you! Now, leave that part to your studio accountant, thanks.
Controlling How an Engineer Makes Money
Recording studio engineers who are employees are typically paid by the hour for an agreed on number of hours. Whereas contract audio engineers are typically paid by the project, result, or outcome. The key difference in this scenario is that the independent contractor has the risk of losing money, whereas an employee is always gaining.
Do the engineers also do work for other recording studios or artists? If so, it is likely they are running their own business, making them a contractor. If however, the audio engineers’ sole income is from your recording studio, they’re likely an employee.
Who pays the audio engineer’s expenses? If they need additional equipment to perform their work or if they are required to travel outside of the studio, who is responsible for the cost? If your answer is “the engineer” you’ve likely got a contractor on your hands, otherwise if the recording studio is paying for expenses, the engineer is operating as your employee.
Are you exercising financial control over the engineers in your recording studio? Let’s continue the discussion on Twitter!
(Side note: if you’re afraid to tell the IRS you accidentally paid your engineers as contractors, there’s a fix for that and it’s possible to get the tax and penalties reduced or eliminated using what’s called a Volunteer Classification Settlement Program.)