Wednesday, June 15, 2011

What's best for *you*?

The VFX and Motion Design labor movements are real.  Maybe better to call them 'workplace reform" or "fair trade" movements? Regardless, they are resonating with a lot of people in those fields, both artists/craftspeople and employers/managers.

Let's put aside, for the moment, what might be the best way to achieve the goals of the movements -- union, guild, foundation, code of ethics, pistols at dawn...

We can pick out some common goals:  affordable/portable health benefits, portable retirement plan, proper tax/employment classification, Social Security payments, overtime pay, prevention of workplace abuses.  That should be good for a start, right?  Sounds good to me.  Now, regardless of how these goals are achieved, they have to be paid for.  By whom? 

The VFX/design shop owners who are supposedly getting rich off the sweat of your brow? 

That might be possible if that were true.  However, most shop owners are practitioners themselves (let's ignore the Carlyle Group, Barclay's, Wyndcrest, Lucasfilm, and anyone else big enough to not pay taxes), and tend not to be as focused on the bottom line as they perhaps should be.  Based on my experience as a business (co-) owner, I'd have to look at what those things cost, and see what I could afford to carve out of a not very large margin.  Let's see -- okay, union P&W adds about $4/hour/employee.  Adding someone to payroll -- maybe $75, but that's for *each* time that person is hired for a project.  Overtime -- well, we usually assume a 50-hour week, so that means 2 hours of OT every day, at 1.5x.  Gee, this is getting complicated, I'd better hire a payroll service and pay my accountant to keep things straight. And unemployment and disability insurance -- nearly forgot that! (The last time I forgot that it cost me well into 5 figures...)

Okay, let's wave our hands and say that the traditional freelance/staff differential of 20% applies.  That is, if you're used to making $1000/week freelance (1099 and all that), you'd be paid $800/week for a staff position with nominal benefits and PTO.  So to an employer, if your effective hourly rate (assuming your day rate = 8 hours at straight time and 2 hours at 1.5x) were to stay the same as it currently is, labor costs would go up by 20%.  But that's a minimum. Whenever there's a need for OT, you'd be working the same 15-hour days as you do now, but the employer *must* pay 1.5x for those hours -- no more "comp days!".  So that's, oh, maybe another 10-20% of total annual labor costs, based on personal experience.  So total labor costs would rise by 30-40%, instantly.

Now, I'm a demonstrably poor businessperson, so my math might not be right, and maybe my experience isn't relevant.  But for the sake of argument, I'm willing to look even more foolish and say they are.  For small owner-operated shops, on VFX jobs, I think gross margins (EBITDA) may hover around 30%, net profit around 5%.  Design/mograph -- gross margins may be around 50%, net around 20%.  Labor costs seem to run about 30-40% of budgets in either area.  So for VFX, increasing labor costs by even 30% would cut gross margins to 18%, and net profit to, uh, a 7% loss.  Design goes to 38% margin, 8% profit.  Uh-oh.

That's unsustainable, especially for VFX-oriented small shops.  In fact, 5% profit is unsustainable, unless you assume the shop owner will work 100-hour weeks forever to make up for every mistake or shortfall.

So maybe design shops will pay for some of this.  VFX shops can't.  That means if you want those good things (affordable/portable health benefits, portable retirement plan, proper tax/employment classification, Social Security payments, overtime pay), you're going to have to pay for them.  You want OT after 40 hours (because the IRS says you're an employee, and there's no way around that)? Then you'll have to charge less. Probably not as much as it would cost you as an individual to buy your own health care, set up and manage your own S-corp or LLC, buy your own hardware and software, pay your own insurance, unemployment, disability, Social Security, vacation and sick days; but still a significant amount.  (If you're at the earnings level where this isn't true, you should already be taking care of those things yourself -- congratulations!)

Let's say that somehow, VFX and design shops manage to convince their clients to pay cost-plus or time-and-materials instead of firm-bid. Which means that shop owners won't have to eat every bit of overtime regardless of cause.  Even then, in order to just stay in the same un- or barely-sustainable position they're in now, *you* would need to be willing to earn 20-30% less per year. (This would be a result all these changes; for example, diligently paying overtime to employees -- if an employer has too much OT per employee, it's more sensible to add more employees, so no one will work tons of OT, even if they want to.) In return, you'd have more time for yourself and your family, less stress, some health insurance, decent retirement savings, unemployment insurance, probably more steady work, and probably fewer hassles from the IRS in the future.  Would you really choose that?

If you're over 35, and/or married with children, I'd bet yes.  For everyone else (the majority of the employee pool), mmmmmaaaayyybee not.  When I was young and stupid(er), I thought "make hay while the sun shines," and worked every chance I got. Now I regret some of the hours, days, and months I spent working when I could have been in the world, living. I think most of us in the business tend toward this behavior.

So, really:  are you willing to take a 25% annual take-home pay cut in order to help secure a better life for yourself and your family, and a healthier industry in which to work?  If you're not, then all the talk about organizing, sustainability, and fairness is just... talk.  Are we serious about all this?  Then we have to be willing to pay for it. 



another vfx guy said...

thank you whoever you are. thank you for this great post.

Thea said...

I see just one problem with your the need for overtime and more employees increases, and the cost of VFX work goes up, why on earth should VFX houses take that cost on themselves rather than simply charging their clients for the increased cost of production? I understand there's a certain need to remain competitive, but the people who take the burden of that cost shouldn't be the VFX studio owners, it should come from the budgets of the projects their employees are working on. In Hollywood's case, if they paid some of those big-name actors a couple million dollars less, I should think that would cover the necessary difference in price.

etmthree said...


I agree completely! In fact in the post, I say that the VFX shops need to be charging more for their work, by changing to a cost-plus billing model. But that's between the shops and the studios and ad agencies. I think that any change in that direction will be longer in coming, and VFX labor needs to find a way to organize now, within the existing business model.


Steven Kaplan said...

Greetings etmthree. I am Steve Kaplan and the Labor Organizer for IATSE Local 839 - the Animation Guild.

I'm going to have to back-up Thea on this and say "Why does the artist have to take a pay cut?" Why do you suggest that the artists have to adjust their pricing in order to "afford" collective bargaining and the perks of portable health and pension benefits?

You claim in your reply that in the post you say the VFX Shops should move to cost-plus model. Actually, the tone you use suggests it would be impossible for shop owners to move to that type of cost model. I would hope that as a co-owner of a business, you see the merit of moving away from the current practice of competitive bidding to the point of bleeding yourself dry in order to be awarded work. That methodology certainly is costing the vfx artists already.

Your math leaves me with a lot of questions and confusion, so I'll jump over it and go to your conclusion paragraph which states that unionization is not feasible because of cost. You then continue and say that in order to get the perks of unionization, the artist needs to take a 20% pay cut to cover the costs for the employer. I can argue your cost analysis, but lets leave it for the sake of this discussion. Why is it the onus of the artist to bear these costs? Since you claim that you support a cost-plus model, why wouldn't you build in union H&P costs into your bid to the agent/producer?

Would this price you out of business? I would argue it doesn't .. but that's the argument used against this suggestion. It could make your prices higher than the shop that: *mis-classifying their employees in order to avoid paying the proper payroll taxes *avoids paying OT by insisting on a weekly flat rate and then breaks state and federal labor overtime stipulations *purposely underbids time and costs to be awarded the work and then forces the artists to bear the burden of the "Race to the Bottom" with lines like "Come on Team .. We can Do IT!" or "You know this is how the business works .. deal with it".

Finally, you also suggest that purposely violating labor and IRS laws is the norm and expected standard for small VFX shops. While being utterly appalled at that, it also is a shining example why unionization is so important. As a former vfx artist who worked in plenty of shops like yours (assuming your shop is one that has these practices since you're in favor of them), I'm all too happy to have the organizing position with the guild where I can do my best to effect the necessary changes in the industry we value so much.

Steve Kaplan
Labor Organizer
The Animation Guild, Local 839 IATSE

Jeff said...

Let's leave labor unions out of the discussion for a second (sorry Steve). Why should businesses that follow the rules have to compete with someone who is misclassifying employees as 1099 contractors and/or is not following labor laws on overtime. I see this no differently than if you had to compete with someone who is using cracked software.

You paint a picture that the decision as to who is a 1099 contractor or if the company has to pay overtime are optional and up to the company and the worker. Not true.

Should not a level playing field should be in every business owners interest?

Bran DJ said...

Yes. But I am one of those older folks who now values quality of life over $$$ and cool-ness of work.

etmthree said...

Please see my new post for clarification and response to these comments. thanks!