Hiring a band: Part 2

As featured in: Performing Songwriter Issue #75, January/February 2003.  Visit performingsongwriter.com to order back issues or subscribe.

by Beverly Bartsch

Part 1 | 2

Per Diem
A per diem is a per day amount paid to band members to compensate them for the expenses incurred while on the road traveling with an artist. A per diem is supposed to cover meals, local transportation (cabs, trains), bellman tips and the like. A per diem can also cover the hotel expenses, but I’ve found that’s not very common in the music business. Per diem amounts range greatly depending upon tour locations, number of show-days versus number of off-days, and the hotel accommodations (fancy, middle of the road or basic). For example, if the tour is running just through college markets staying in Super 8 motels, and there is a show every night, the per diem level might be around $25. If on the other hand, the band is going to New York City, Chicago, Dallas, Los Angeles, and other large “A” markets, the accommodations are the Four Seasons, and there are two days off between every show day --it’s probably going to be $40 or $50 per day. Why the difference? Chances are the artists are at different financial levels of success, which dictates all the costs of the tour and $25 per day may just about cover breakfast at the multi-star hotels.

Of course, the IRS always has a say in the matter. The IRS has put out a table that lists the allowable per diem rate for just about every city in the United States. This table takes into account the cost of living in that city, and the cost of being a visitor, among other things. An employer is allowed to pay both employees and independent contractors a per diem; however, any amount that is over the value listed on the table for a certain city must be included as compensation to that worker. For instance, a tour is paying $40 per day, but they are spending a day in a smaller town where the IRS tables lists the maximum allowable per diem as $28. That difference of $12 should be included as compensation on those workers’ w-2 or 1099 (depending on worker classification).

From a recordkeeping standpoint, this can be a problem. I know; I’ve had to run these calculations. Looking up every city in the tour on that chart, figuring out how many days the tour was in that city, and then trying to explain what those numbers are and why they are included as compensation--not so much fun.

Besides, from the employers’ point of view, the per diem is only 50-percent deductible when it comes to taxes. A per diem is generally paid for meals and incidentals. Years ago, 100 percent of food and entertainment was considered deductible for tax purposes. Those were the glory years of big expense accounts for salespeople, as well as for touring individuals. Now, only 50 cents of every dollar spent on a per diem is a tax deduction. (Just a note: It’s not just per diems that are 50-percent deductible--all meals and entertainment expenses in all business are only 50- percent deductible. There are very few exceptions to this rule. For more information, check out www.irs.gov.)

Employers have found that if they increase the wages of a worker to cover what would have been a per diem, recordkeeping is drastically reduced, there is less need for cash on the road (although that’s a shift in thinking for most band members-- be sure to warn them ahead of time), and 100 percent of the payments to the band members are tax deductible. Now, for the band member who is an employee (not independent labor), this means that his per diem is now subject to Federal Income, State Income (if applicable) and FICA taxes. If a band member got $30 in per diem as a cash payment on the road, the employer was not withholding any FICA or Federal/State Income taxes--if this money is included in his wages, it now is subject to withholding. Just because the employer was not including this in wages before does not exempt the band member from having to report this income. It’s still income to the band member. However, there are certain allowances given to a person who receives a per diem, as long as there is documentation, substantiation, and a receipt for each expense paid for with the per diem.

Because a band member’s per diem is taxed when included in wages, and the employer is matching the FICA taxes, some employers are now increasing the amount paid in per diem to cover the employee’s share of the FICA. Yes, it costs the employer more (7.65 percent of the amount), but everything is now tax deductible. What used to be $30 per diem may now be $35, but it is worth it to the employer in the grand scope of the tour expenses and what is and what is not allowable for tax purposes.

Before you promise a per diem to your band members, please talk with your accountant about the ramifications of that promise on your business. Band members sometimes consider this \"free\” money. Well, it’s not free to the artist/business owner. There are substantial costs involved, so know clearly how you want to handle it before nonchalantly throwing out, “Oh, and you’ll get a per diem,” when you hire that band member.

If a band member has been hired as an independent contractor, the same logic applies, and the per diem can be included in the contracted fee established between the business and the band member.

Lodging and Transportation
When a band member is hired, the artist/business owner/tour usually pays for the lodging and transportation of the entire entourage. The question of whether the band flies first class or coach, gets single rooms or has to share is up to the artist/owner and the tour budget.During a lengthy tour, for which most of the transportation is a tour bus sleeping 12 people, the band members might be extremely grateful for single hotel rooms on those rare days off. However, what can the budget afford? Again, be sure to communicate to the band member what the levels of accommodations are going to be well ahead of the start of the tour.

A tour will normally pay for the room and tax for the entire tour party with one checkout. A tip to make life easier on your tour accountant, road manager or yourself (if you’re doing the group checkout): Make sure each member of the tour puts down his or her own credit card for incidentals at the hotel. In addition, they must pay for all their incidentals prior to the group room-and-tax checkout. The tour should not pay for any incidentals (especially if the band member gets a per diem), and the hassle factor in having to collect from band members is high. If the tour has to pay for any band member’s incidentals, give them one warning, and the next time they will be charged a $50 fine in addition to the cost of the incidentals. It doesn’t take long for the band to act responsibly.

Food
In a normal touring situation, it is common for a promoter to provide food for the insite crew and band members during the show-day. The crew may arrive early in the morning for load-in, resulting in three meals on a show-day. If the band shows up about three or four in the afternoon for soundcheck, they would usually just get dinner. Band members are required to provide for their own meals for breakfast and lunch.

Another source of food on a tour is bus food. This is the snack stash that makes its way onto the bus or van for consumption at all hours of the day or night by hungry band members. Who pays for this is up to you as artist/business owner.

Insurance
As an employer, the artist/business owner is required to provide workers compensation insurance for its staff.Workers compensation is based on the classification of the worker as dictated by the employment rules and regulations and is paid as a percentage of the workers’ wages. The classification percentage is determined by the risk involved in the job. For example, the rigger is going to have a higher rate than an office worker. Anybody who is onstage under a hanging sound and light system is also going to have a higher rate than an office worker, but not quite as high as the rigger. Talk with your insurance agent before you hire a staff. You will need to know what amount you intend to pay each person, and what the job description is for each person. The insurance agent will feed that information to the underwriter, who will tell you what the estimate of workers compensation is for you during the duration of the tour.Workers compensation policies run on an annual basis from the start date of the policy. After each policy year, you will be required to complete an audit for this policy. It uses the information you kept from your payroll records to verify the amount of payroll actually paid, and then workers compensation percentages are applied to the job classifications for those payroll wages. If you underestimated at the start of the policy, you will have to pay the difference. Likewise, if you overestimated you will get a refund.

Health insurance is usually not provided to band members. The reason is that, while the band member is an employee for a certain amount of time (length of tour), after they leave your tour, they will join another one--so keeping up with policies and coverage could be nightmarish for those band members. The thing to keep in mind about health insurance is that you cannot play favorites. A group plan must be consistent, so if you determine that all salaried employees are eligible for health insurance, then each person that is salaried should be able to join the group--whether they are there for two shows or 200 shows.

Put It in Writing
After you’ve counted all the costs associated with adding band members, and you have determined what you can and cannot afford to pay, write it down. Having a simple one page written employment agreement between the tour/artist/business owner and the band member eliminates many questions. Items to include in the agreement are:

• Tour itinerary--duration and schedule.
• Rate of show pay.
• Rate of off-day pay.
• Rehearsal pay and rehearsal dates.
• Per diem--either included in show-pay or paid separately, but excess will be taxed to the individual as required.
• Dates on which they will be paid (I recommend a semimonthly payroll, on the 15th and last days of the month) and which show dates will be included in that pay date.
• Policy for hotel rooms--either single or shared rooms. If a band member requires a single room, how will that band member reimburse the business owner for the cost of the single room?
• Policy regarding postponed or cancelled shows.
• Anything else that you feel is important to your tour and its success.

As with any business decision, figuring the cost of that decision is crucial before making public announcements and private promises to workers. So the next time you need a band member, your conversation can go more like this:

“Hey, friend, can you play guitar during my set Saturday night at the HotSpot? It’s a 45 minute set,with 30 minutes before and after for setup and tear down. There is a rehearsal on Tuesday evening for one hour. A meal will be provided for you prior to the show, and I can pay you $250 for the show, plus $125 for the rehearsal, all of which will be paid on the 15th. All parking and transportation expenses will be your own. I’m also planning a 200-city tour next spring, and if Saturday works well for both of us, let’s talk about the tour.” Now that’s a job offer to take to the bank.”

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