Total and Partial Unemployment TPU 460.6
Remuneration for Past or Future Services
Any remuneration for services performed is reportable wages under Sections 1252 and 1279 of the Unemployment Insurance Code. These services may have been performed in the past, or may be the mere holding of one’s self in readiness to perform a service in the future.
A. Backpay Awards
The United States Supreme Court in Social Security Board v. Nierotko held that "backpay" awards as the result of wrongful discharge constitute wages for employment under the Unemployment Insurance Code. The court then went on to say:
"If as we have held above, ‘backpay’ is to be construed as wages, we have no doubt that it should be allocated to the periods when the regular wages were not paid as usual."
In other words, the court held that these wages were allocated to the periods when they should have been earned.
In Benefit Decision 5782, the Board applied this principle in the case of claimants in the foot processing industry who received backpay awards because of wrongful discharge. The Board held that this pay should be allocated to the period immediately following discharge and said:
"In the instant case, an award of backpay was made to the claimants covering periods of time from the date of their discharge to August 31, 1949. This backpay constituted wages . . . . In our opinion, such wages were properly and reasonably allocable to the weeks that the claimants would have worked except for their discharge . . . . Therefore, we conclude that the claimants were ineligible during the weeks . . . for which they received benefits, to the extent of the applicable backpay received during such weeks . . . ."
(For a complete discussion of backpay awards, see TPU 80.05.)
B. Duplicate Payments
It may happen that a claimant is paid twice for the same period of work. Since this second payment is not for personal service, it is not reportable wages under the Unemployment Insurance Code. The Board considered this in Benefit Decision 6390. The claimant worked one day during the week ending April 24. The claimant was paid in cash by the employer. Several weeks later, the claimant received a check in the mail from the employer in payment for the services rendered for that same day. This constituted a duplicate payment. The Board said:
"Wages as defined above are essentially remuneration payable for personal services. This implies an obligation on the part of the employer to make payment with a corresponding right on the part of the worker to receive such payment. In the instant case, all amounts owed by the employer were paid at the conclusion of the one day involved. There remained no amount owing, no obligation on the part of the employer to make additional payment, and no right or expectation on the part of the claimant to receive any additional amount. Accordingly, the claimant correctly reported his earnings with respect to the week ending April 24, 1954 when he next certified for benefits. The subsequent payment received by the claimant was made by the employer entirely under the mistaken belief that the claimant had not been paid for services rendered. Not being ’payable for personal services’ rendered by the claimant, this duplicate payment was not ’wages’ as defined above. Therefore, the claimant was not required to account for this money which he received and retained when he reported to the department. Any obligation which the claimant had with respect to this payment was to his employer."
C. Residual Payments
Various categories of workers in the entertainment industry and related fields receive special payments commonly referred to as residual payments or fees. These payments are additional compensation paid to an individual for the replay or resale of recorded materials (such as theatrical films, phonograph records, radio broadcasts, television programs and commercials, video cassettes, etc.) with respect to which the individual previously performed services. The categories of workers who receive such payments include, but are not limited to, actors, actresses, singers, dancers, musicians, directors, and writers. Other common terms for these payments are use, reuse, and rerun pay. (Note: The payments made to some musicians from the Phonograph Manufacturers Special Payment Fund are a form of residual payments.)
In P-B-422, the Appeals Board confirmed long-standing Department and board policy by holding that residual payments were wages for unemployment insurance purposes since they are remuneration for personal services.
In P-B-422, the Board also affirmed the Department’s policy of allocating residual payments to the week in which they are mailed or delivered to the claimant or to his/her designated agent. This allocation policy was modified by the Board in P-B-429.
In this case, a financial management company for advertising agencies and film production companies reported to the Department, in response to a benefit audit, that the claimant was paid $159.20 during the week ending October 11, 1980; $79.60 during the week ending October 25, 1980; and $250 during the week ending December 20, 1980. The checks issued were residual payments for the subsequent showing of television commercials in which the claimant had previously performed services. These payments were mailed by the financial management company to the claimant’s talent agent during the weeks noted above. The talent agent deposited the checks, which were made payable to the claimant, into the agency’s bank account and then issued new checks to the claimant in amounts reduced by the agent’s commission.
In certifying for benefits for the weeks ending October 11, October 25, and December 20, 1980, the claimant reported that he did not work and had no earnings. He was paid full weekly benefits for those weeks. As a result of the information provided by the financial management company, the Department later allocated the residual payments to the weeks in which the checks were mailed to the claimant’s talent agent, in accordance with P-B-422. An administrative law judge affirmed the Department’s decision. The Board reversed the findings of the ALJ and reasoned as follows:
"In this case, the claimant had no reason to believe, much less to report that residual fees had been paid to his agent during the weeks ending October 11, October 25, and December 20, 1980. The evidence shows the other actors in the same situation would be in no better position to know when such fees have been mailed or delivered to the guild or their agents
Under such circumstances, it is found that allocating residual fees as wages in the week they are actually received by the claimant is the more equitable and practical rule. Such a rule will place no unreasonable reporting requirements on the claimant and the mailings records of the claimant’s agents provide the Department a bench mark for determining whether the payment has been timely reported . . . . "
In reaching its decision in P-B-429, the Board only addressed situations in which residual payments are processed by either the Screen Actors Guild or a talent agent before the payments are received by the worker. There are, however, a variety of other methods used to process residual payments. The exact procedures and entities involved will vary from case to case depending on the type of work performed, the collective bargaining agreement pertaining to this type of work, the employment contract, the contract between the worker and his/her talent agent(s), and private arrangements made by the worker with respect to the disposition of wages paid. Because of the variety and complexity of methods used in the processing of residual payments, the Department has adopted the following allocation policy.
Residual payments will be allocated to the week in which such wages are "received" by the claimant.
These payments will be considered as "received" during the first week in which one of the following occurs:
(1) The payment is personally given to the claimant.
(2) The claimant is notified (by his/her talent agent, guild, union, etc.) either orally or in writing that a payment has been paid to the claimant.
(3) The payment is deposited or credited to the claimant’s account in a bank, credit union, savings and loan association, or other financial institution.
(4) The payment is delivered to the claimant’s home or mailing address.
(5) The payment is delivered to a business manager, accountant, or other person designated to handle the claimant’s financial affairs or authorized to retain or use the payment to pay the claimant’s financial obligations.
NOTE: If the date of delivery, as used in items (4) and (5) above, is unknown, calculate a "presumed date of delivery" by adding four (4) calendar days to the postmark date in which the payment was mailed. If the postmark date is unknown, add four (4) calendar days to the date the payment was mailed.
The following examples, which are based on actual situations encountered by the Department, illustrate how residual payments would be allocated using the guidelines provided above.
EXAMPLE A
On Friday, March 18, EDF Films mails to the Films Actors Guild a check for residual payments, payable to claimant "A". After verifying that the payment is for the contracted amount, the Guild mails the employer’s check on Thursday, April 7 to "A’s" talent agent. The agent cashes the check, retains a commission, and writes a new check to the claimant. It is mailed on Thursday, April 14, to the claimant’s home address and delivered on Monday, April 18.
Allocation: The gross amount of the residual payment would be allocated to the week ending April 23, the week of delivery to the claimant’s mailing/residence address.
EXAMPLE B
On Thursday, April 7, claimant "B" visits the office of his talent agent to review some publicity pictures. "B" is advised for the first time that, in the prior week, the agent had received a check dated March 25 payable to "B" for residual payments from CBA Advertising. The check amount was $225, based on gross earnings of $250. The agent had cashed this check, and on April 7 gives "B" an agency check in the amount of $200, having deducted an agent’s commission.
Allocation: The residual payment of $250 would be allocated to the week ending April 9, the week in which the payment is personally given to the claimant since the claimant had no prior knowledge regarding the issuance of the check.
EXAMPLE C
On Friday, May 6, a postcard is delivered to claimant "C’s" house. It states that a residual payment paid to the claimant in the gross amount of $40 has been processed by the union and can be picked up immediately. Since the net amount of the check is only $35, "C" defers picking up the check until Tuesday, May 10, when she has a job interview in the vicinity of the union’s office.
Allocation: The residual payment of $40 would be allocated to the week ending May 7 since the claimant was first notified in that week that a payment had been issued.
EXAMPLE D
Claimant "D" is president and sole shareholder of a corporation, A Director, Inc. The sole business of the corporation is supplying the services of "D" as a film director. When working, depending on the contract that can be negotiated, "D" is either an employee of a film production company or an employee of A Director, Inc. In the latter instance, the corporation contracts out "D’s" services to film production companies (Note: A common industry for corporations which function similarly to A Director, Inc., is "loan-out company").
A residual payment in the gross amount of $300, for the rerun of a TV movie which "D" had directed as an employee of A Director, Inc. is issued by XYZ Productions to the claimant’s corporation. The check is made payable to A Director, Inc. rather than to the claimant. It is sent by XYZ Productions to the Director’s Guild which verifies the accuracy of the amount and then forwards the check to the accountant who handles the business and financial affairs of "D’s" corporation. The accountant receives the check on Monday, June 20, and deposits it that day to the corporation checking account. At the claimant’s request on Friday, July 1, the accountant sends the claimant a check for $200, drawn against the corporate account.
Allocation: The $300 residual payment would be allocated to the week ending June 25, the week of delivery to the accountant for A Director, Inc. The claimant, as president and sole shareholder of the corporation, controls the corporate affairs, including the activities of the accountant. Hence, receipt of the payment by the corporation’s accountant is tantamount to receipt by the claimant.
EXAMPLE E
Cold Beverages, Inc. issues a check for residual payments, payable to claimant "E", a ten-year-old child actress. The check is mailed to "E’s" talent agent, who cashes the employer’s check, and issues a new check, having retained an agent’s commission. The agency check is mailed to "E’s" business manager, the claimant’s father. It is received at the father’s business address, which is different from the family’s home address, on Friday, September 16. The father cashes the check, using a portion of the payment for "E’s" share of the family living expenses. On Monday, September 19, he deposits the balance of the payment to a trust account for "E".
Allocation: The gross amount of the residual payment would be allocated to the week ending September 17, the week it is received by the individual who handles the claimant’s financial affairs (in this case, the claimant’s business manager/father).
EXAMPLE F
Claimant "F" is in New York working on a film during the two weeks ending April 2. While "F" is out of town, a check for residual payments, mailed by the Writer’s Guild, is delivered to "F’s" P.O. Box in Los Angeles. "F" returns home on Monday night, April 4, and picks up the check from his P.O. Box the next day. "F" does not know when the check was delivered, but he has retained the envelope in which the check was mailed which shows a postmark of Monday, March 28.
Allocation: The residual payment would be allocated to the week ending April 2. Since the date of delivery is unknown, it is calculated by adding four (4) calendar days to the postmark date, thus giving a presumed delivery date of Friday, April 1.
If the postmark date had been illegible (or if the claimant did not retain the envelope), a presumed delivery date would have been calculated by adding our calendar days to the date the payment was mailed by the Guild.
EXAMPLE G
On July 17, DOL Television sends to the Variety Artist’s Guild a check for residual payments payable to claimant "G" After verifying that the amount paid is correct, the Guild mails the check on Thursday, August 4, to the credit union for direct deposit to the claimant’s account. "G" had made prior arrangements with the Guild to have all of his earnings which are processed by the Guild sent directly to the credit union. Also, on August 4, the Guild sends a statement to "G" giving information about the payment. The statement is delivered to the claimant’s home address on Saturday, August 6. On Wednesday, September 7, the claimant receives a credit union statement for the month ending August 31 showing that the check from DOL was deposited to "G’s" account on Monday, August 8.
Allocation: The residual payment would be allocated to the week ending August 6, the week in which notice from the Guild concerning the issuance of the payment was delivered to the claimant’s home.
If the Guild had not sent the claimant notice concerning the payment, it would have been allocated to the week ending August 13, the week in which the payment was deposited to the claimant’s account. Although the claimant would not have been notified concerning the payment until a month after the date of deposit, the payment would have been readily usable by the claimant once it was credited to her account. Hence, the deposit is tantamount to the claimant’s taking physical possession of the check.
EXAMPLE H
RST Advertising mails a check for residual payments, payable to claimant "H" to "H’s" talent agent. The check, which is received by the agent on Thursday, November 17, is deposited into the agency’s bank account. The entire net amount of the check is retained by the talent agent to pay for the agent’s commission and for the costs incurred by the agency for publicity pictures of "H". When the bill for the pictures was received in October, "H" and the talent agent had agreed that the agent would immediately pay the bill and obtain reimbursement later by retaining payments payable to "H".
Allocation: The gross amount of the residual payment would be allocated to the week ending November 9, the week of delivery to the talent agent. Since the claimant had given the agent prior authority to use the payment to defray the claimant’s financial obligation, delivery to the agent is tantamount to delivery to the claimant. This example can be contrasted to P-B-429 and Examples A, B, ant E above wherein the talent agents were authorized to retain only a portion of the workers’ residual payments as agents’ commissions, in accordance with a common industry practice.
D. Holding Fees
A holding fee is a payment made to a performer (e.g., actor, singer, dancer) with respect to the filming of a commercial. It is separate from the compensation paid for the hours or days of actual work performance (often called session fees). The holding fee is normally paid at the beginning of each fixed period or cycle (often of 13-week duration) during which the commercial will be used. Often, the performer is prohibited from performing in a competitive commercial during the cycle. If residual payments for the same commercial become payable during a cycle, they may be reduced by the holding fees paid at the beginning of the cycle.
In P-B-422, the Board held as follows:
"A holding fee is actually nothing more than an advance use or residual fee and is the consideration for an employer’s continued use of a commercial. Since holding fees are credited against use or residual payments at the end of a cycle, we make no distinction between such fees . . . . For unemployment insurance purposes, residual, rerun, use, reuse, and holding fees are the same; namely, fees generated by the use of a commercial, and are wages within the meaning of Section 926 of the Code."
In accordance with the Board’s findings in P-B-429 concerning the allocation of residual payments, holding fees will be allocated to the week in which they are "received" by the claimant. See the discussion above on "Residual Payments" for guidelines on determining when these wages are considered as "received".
E. Standby, Idle Time, and Show-up Pay
An individual may be paid wages to hold himself in readiness to perform a service. Such wages may be called standby, idle time, or show-up pay. The Board has held that wages paid to a claimant for standing by are reportable wages under the Unemployment Insurance Code. In Benefit Decision 5492, the claimant was contacted by a motion picture studio for work as a pilot to "double" for an actress. The claimant was told to hold herself in readiness to report for such work. The claimant was never called upon to perform any service, but the studio paid her $100. In holding that this $100 payment was wages, the Board said:
". . . the term ’wages’ means all remuneration payable for personal services, whether by private agreement or consent or by force of statute, including commissions and bonuses. . . . ’Employment’, subject to other provisions of this Act, means service . . . performed for wages or under any contract of hire, written or oral, express or implied . . . .
In view of the broad language contained in the cited provisions of the California Unemployment Insurance Act and the principles expressed by the United States Supreme Court in interpreting similar provisions, the $100 in issue in this case constituted ’wages’ for ’employment’.
F. Royalties
Royalty payments are not wages since they are not payments received in exchange for services performed.
Royalties are of different types - royalties arising from a copyright such as authors and composers receive, and royalties arising from the use of a commodity or idea such as oil and gas lease royalties and patent royalties. The court in United States v. Youngstown Sheet and Tube Company defined royalties as follows:
"The word ’royalty’ commonly imports payment for permissive or lawful use of a property right."
The decision that royalties, as defined above, are not considered wages is based on the provisions of three sections of the Unemployment Insurance Code. Section 926 provides:
"Except as otherwise provided in this article, ’wages’ means all remuneration payable for personal services, whether by private agreement or consent or by force of statute, including commissions and bonuses, and the reasonable cash value of all remuneration payable in any medium other than cash."
Sections 1252 and 1279 provide, in pertinent part, as follows:
"For the purpose of this section, only the term ’wages’ includes any and all compensation for personal services whether performed as an employee or as an independent contractor . . . . "
It is apparent from the above-quoted sections that the requisite to be met before any sum of money can be considered "wages" is that the money be received as "remuneration" (Section 926) or compensation" (Sections 1252 and 1279) for personal services. It is also apparent that royalties, being a "payment for permissive or lawful use of a property right" to not meet this test. Therefore, royalties should not be considered "wages", and the receipt thereof should not act as a bar to benefits under Sections 1252 and 1279 of the Code.
Clearly, royalties differ from net income from self-employment, which is reportable wages, in that such income is compensation for personal services in the business.