On a daily business, often questions come up about calculation and payment of Residuals.

If Residuals are not paid by the Distributor (often a studio or a major distribution company) and Residuals are not paid from the budget either, how does the Production Company comply with its Residual obligations?

In independent film and TV, two parties are essential in the process of calculating and paying Residuals: the Collection Account Manager or CAM, and the Payroll House.

In this article we will discuss how Residuals are calculated and paid. We will also highlight the roles of the CAM and the Payroll House with respect to Residuals.

The position of the US Guilds in film and TV

In the United States, the Production Company has the obligation to pay Residuals to the Guilds if one or more Guild Members are involved in the film or TV production.

For our purposes, if we refer to the Guilds we mean the traditional three: the Screen Actors Guild - American Federation of Television and Radio Artists (SAG-AFTRA), the Directors Guild of America (DGA), and the Writers Guild of America (WGA).

The Guild Members are those actors, directors, and screenwriters which are members of respectively the SAG-AFTRA, the DGA, or the WGA.

The Guilds represent the collective interests of the Guild Members on labor related matters.

To learn more about the role of the US Guilds in the entertainment industry, please read here.

If Residuals are not paid from the budget, and there is no Distributor that assumes payment of Residuals directly, the Production Company is allowed to pay Residuals from the revenues of the project.

For the Guilds to ensure that there will be sufficient funds available to pay Residuals from revenues, the Production Company has to engage a CAM to administer the revenues.

What is a CAM and what is its role in film and TV

The CAM is a neutral, trusted third party that receives, allocates and disburses the revenues on behalf of such parties with a major financial interest in the film or TV series.

Revenues typically include all royalty payments generated in connection with the international distribution of the project.

The parties with a major financial interest are generally, apart from the Production Company and the Guilds, the international Sales Agent and the project’s Financiers. Sometimes talent (Director, Writer, Actors) and if applicable, a Completion Guarantor also have a major interest in the project’s revenues.

To learn more about Collection Account Management, check out my previous article on Stage 32.

The role of the Payroll House in independent productions

The Production Company will also need to hire a Payroll House.

The Payroll House processes paychecks and pays payroll taxes, unemployment, union fees, and workers' compensation insurance.

Also, the Payroll House does the payroll of the cast and crew in film, television, and commercial productions. It must also understand the industry's wage and hour laws and the regulations of the Guilds.

Guild Residuals: how are they calculated

The Payroll House calculates the actual Residuals payable.

The Production Company and the Payroll House enter into a Payroll House Agreement, which deals with the appointment of the Payroll House and stipulates how the Payroll House will calculate Residuals and which information will need to be provided by the Production Company.

The calculation of Residuals is based on a formula whereby information from several sources is taken into account. Such sources include the production (time spent and the type of production), distribution (market breakdown for amongst others TV, video and new media), and the CAM (revenues received and the sources of the revenues).

The media allocation indicates how the breakdown of Residuals is per media window, like Pay TV, Free TV, Video / DVD and New Media. To determine the applicable media allocation, the Payroll House assesses the individual Distribution Agreements entered into per territory, the CAM Agreement, and the so-called Gross Receipts Reports provided by the CAM.

How are Guild Residuals paid?

The Guilds, together with the Production Company, the Sales Agent, and any other parties with a major financial interest in the film or TV series, enter into a multiparty Collection Account Management Agreement or CAM Agreement.

In accordance with the CAM Agreement, a Collection Account is an account set up in the name of the CAM.

Also, the CAM creates a Residual-Set-Aside, as part of the project’s Recoupment Schedule (for more info about how to put together a Recoupment Schedule, click here). The Residual-Set-Aside is a reserve to which, off the top, a percentage of all revenues is allocated to cover payment of Residuals.

In order for the CAM to be the sole party that controls the revenues, the Sales Agent instructs all Distributors to pay the revenues generated by the international exploitation of the project, into the Collection Account.

From each payment received in the Collection Account, a part is set aside by the CAM in accordance with the agreed Guild percentages.

The Payroll House subsequently issues an invoice to the CAM, usually each calendar quarter, showing the amount of actual Residuals payable. The invoice also includes the numbers for pension plans, payroll taxes and the Payroll House fees.

The CAM then pays from the Residual-Set-Aside a lump sum to the Payroll House.

Finally, the Payroll House cuts the checks and pays each of the individual Guild Members their share of the Residuals.

Relationship between Producer, Guilds, CAM and Payroll House

The Payroll House and the CAM work together constantly, often on multiple projects at the same time.

Although there is a solid professional relationship, the CAM and the Payroll House do not have a direct contractual relationship.

The CAM Agreement is signed between the Production Company, the Guilds and the CAM, which creates the contractual relationship as between them, to establish the Collection Account, the Residual-Set-Aside, and to appoint the CAM as sole administrator of the revenues.

The Payroll House Agreement is entered into between Production Company and Payroll House, to appoint the Payroll House as the party that calculates Residuals and cuts the checks for the Guild Members.

Also, the contractual obligation for the Production Company to pay Residuals has its basis under the Basic Agreements, which are collective bargaining agreements applicable to Guild Members and producers who hire Guild Members.

Furthermore, Guilds and Production Company typically enter into Security Agreements, granting the Guilds on behalf of the Guild Members a so-called Security Interest in the project, to safeguard the payment of Residuals.

Nevertheless, the working relationship between the Payroll House and the CAM is crucial, for accurate calculation and payment of Residuals.

Conclusion

The Production Company, the Guilds, the CAM and the Payroll House together establish the legal and practical infrastructure to make sure that Residuals are accurately calculated and paid to the Guild Members.

The roles of the Payroll House and the CAM are essential. The Payroll House calculates Residuals and cuts the checks for the Guild Members, and the CAM reserves part of the revenues in a Residual-Set-Aside, to make sure that sufficient funds are available to pay Residuals from the revenues of the film or TV series.

The Payroll House and the CAM work together constantly, but do not have a direct contractual relationship. The agreements that together form the legal instruments to deal with Residuals, are the Payroll House Agreement, the CAM Agreement, the Basic Agreements and the Security Agreements between Production Company and Guilds.

Should you like to know more about the payment of Residuals, do not hesitate to contact me.