A Discussion of Below the Line with A Lesser Markup

May 10, 2007

A Discussion of Below the Line with A Lesser Markup

On occasion, a cost controller will request that Payroll Taxes and Union Pension/Welfare costs be treated as a cost-plus item and/or placed below the line at a lesser markup.  There are clear and powerful arguments to be made against such practices.

While it is unacceptable for any line to be pulled out of the bid and treated with lesser markup, the following discussion explains why, in this area, it is a particularly bad business practice to accept that condition.

When a production company pays any invoice except P&W there is never a future liability.

At no time has Eastman Kodak been in a production company office looking through the books to make sure that the proper amount was paid for raw stock on a job 3 years ago.  However, almost every union that our companies are signatory to, has been in our office at some point over the past 10 years to audit our payments to the pension and welfare funds.  These audits are both time-consuming and expensive to prepare for.  They are not optional nor a “current trend”; they are mandated by federal law and will always happen.

The line items dealing with Payroll Taxes and Union Pension and Welfare Costs are the most difficult and onerous responsibilities that a production company shoulders.  If there is to be no adjustment in production fee, these lines should be marked up at a higher rate! 

These items (plus wages) are the only lines in the entire bid for which, as officers of production companies, you can be personally liable.  The liability could follow us through the production company’s corporate veil and you would find yourselves liable for both the payroll taxes and, in situations where certain legal conditions exist, union benefit fund contributions.  In fact, federal tax laws are so strict, that if a crew member working as an independent contractor fails to properly file his or her tax return, our companies become liable for the taxes due.  Both the union Pension and Welfare funds as well as the IRS come after you personally for years, even after a company is no long operating.  You can be audited by the funds for up to 6 years and by both Federal and State tax bureaus for 7 years.

Why Cost Plus makes no sense in this area, specifically:

By requesting that employee benefits be treated as a cost-plus item, an agency or consultant is exp… To read more download the PDF version.  


"AICP Roundtable Discussion." Panelists: Denise Gilmartin, AICP; Matt Miller, AICP; Frank Stiefel, radical.media; Bob Fisher, Celsius Films. ANA Production Management Committee Meeting, 05/01/07.