California Enacts Unemployment Insurance Legislation Reinforcing Existing Law of Loan-Out Company Employer Status and Imposing New Loan-Out Reporting Requirements on MPPSCs Starting in 2026

Late last spring, various entertainment media publications caused alarm in the entertainment industry by reporting that the California Employment Development Department (EDD) was challenging for unemployment insurance (UI) system purposes the long-time industry practice of treating loan-out personal services companies as employers of the talent or crew supplied by them to production companies. The EDD’s disregard of loan-outs as the UI employer of loan-outs threatened to cause severe disruption for the entertainment production industry and conflict with various areas of law recognizing entertainment loan-out companies. Subsequently, the EDD issued a press release reassuring the entertainment production industry that the EDD did not intend to ban the use of loan-out companies in California; rather, EDD’s stated goal was to ensure loan-out compliance with employer obligations to register with the EDD and report applicable contributions to help fund the UI system from the wages paid by the loan-out company to their loan-out personnel – click here.

In furtherance of the twin objectives to preserve entertainment production industry business norms and to foster a regime increasing loan-out UI employer compliance, the California Legislature recently passed SB 422 (see text here), which Governor Newsom signed into law on September 30, 2024. EP collaborated with the Entertainment Union Coalition (EUC) (consisting of the California IATSE Council; Directors Guild of America, LiUNA! Local 724, SAG-AFTRA & Teamsters Local 399) and other payroll companies on crafting the eventual legislation to ensure a workable framework for the entertainment production industry. The EUC praised EP’s involvement in the legislative project: “The Entertainment Union Coalition appreciates EP’s valued partnership to help shape SB 422 in order to preserve the loan-out structure for unemployment tax purposes in California and ensure consistency with industry stakeholder interests.”

The legislation itself covers two main subject areas. First, the amended UI statute dealing with entertainment production talent and crew reinforces the long-time industry understanding that the loan-out company serves as the UI employer of loan-out personnel while the MPPSC hired by the production company operates as the UI employer of the production company’s direct hire individual employees paid by the MPPSC. Loan-out companies under the legislation are defined as corporations or limited liability companies electing corporate federal tax status who principally render services in the entertainment production industry and whose loan-out personnel hold at least a ten percent ownership interest in the loan-out. These codifications of existing industry practice are effective immediately for all past periods.

Second, starting in 2026, MPPSCs are required to collect and report to EDD the following information regarding loan-out companies they have paid in the previous quarter: (1) total amount of payments to the loan-out company; (2) loan-out company’s business name, address and telephone number; (3) loan-out company’s federal employer identification number, California employer account number or other identifying number required by the EDD in consultation with the California Franchise Tax Board (FTB); (4) full name, address, and social security number of any individual supplied by the loan-out; (5) the payroll company’s federal and California employer identification numbers, and (6) any other information required by EDD. The FTB will also have access to the EDD reports filed by the MPPSCs.

EP will be making changes to its loan-out company payroll onboarding process in light of the legislation and will keep clients apprised on the changes.

For any questions about this Alert, you may contact:
Joseph Scudiero, Senior Vice President & Chief Labor Counsel | jscudiero@ep.com
Scott Bishop, Vice President, Employment Law | sbishop@ep.com