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Deferred Payments

Alison Davis is a Legal Officer at Arts Law

What are deferred payments?

Deferred payments allow low-budget filmmakers to produce films when they don't have the resources to pay the cast and crew upfront. The producer and the cast and crew agree that the cast and crew will be paid only if, and when, the film is commercially exploited and a revenue stream is created. This allows the producer to make the film with limited resources, and the cast and crew to get valuable experience working on a low budget film with the knowledge that, if money is made from the film, they will be paid.

It is important that everyone agrees upfront how the arrangement is going to work. How much will the cast or crew member be paid? What is the trigger for payment?

Get it in writing

Whether the cast and crew are being paid upfront or by way of a deferred payment, the producer should enter into a cast and crew agreement with them. The issue of payment is only one issue of several that should be addressed in the agreement. It should also set out what services the cast or crew member is providing, over what period of time, how they will be credited and who owns copyright in material being created. The producer should provide insurance for the cast and crew and, in the case of employees, is required to provide workers compensation and pay superannuation. The agreement should also include a performer's release where appropriate.

How much is the payment?

While it may be tempting to keep the payment provision vague, particularly when working with friends, this will only lead to confusion and disagreements later on. It is far better to define very carefully what each cast or crewmember's payment entitlements are.

Deferred payments are generally stated as a proportion of the surplus revenue. The producer may agree to split the income among the various cast and crewmembers in agreed shares. In many cases, the payment that an individual cast or crewmember will receive is calculated by simply dividing the total surplus revenue by the total number of cast and crew. There may, of course, be situations where one or more cast or crewmembers makes a greater contribution to the film and therefore receives a higher proportion than others.

To prevent uncertainty, or a budget blow-out, there should be a ceiling imposed on the deferred payments, which may be based on the applicable award rates. This means, that even if the film is hugely successful and profit is made as a result of its exploitation, the cast and crewmembers are only paid up to a specified amount. Once they have been paid that amount they are no longer entitled to a share of the profits.

When does the obligation to pay arise?

It is important to be precise about the point at which the obligation to make a deferred payment kicks in. So, if the deferred payment is defined as a specified percentage of surplus revenue, the agreement should define surplus revenue. The cast and crew are not going to necessarily receive payment as soon as any income is derived from exploitation of the film. There might be expenses or debts incurred in making the film that need to be paid first. What is left after these obligations have been met can constitute 'surplus revenue'. It is from this pool of money that the cast and crew are paid. Of course, in reality, there is often nothing in that pool, but when there is, it is essential that the cast and crewmembers know what their rights are to a share of it.

From a practical point of view, the producer needs to keep close track of their schedule of allocation of income so he or she can accurately calculate deferred payments.

Conclusion

Deferred payments can be a viable solution for low or no budget filmmakers. If you are contemplating entering into a deferred payment arrangement, it is a good idea to seek legal advice about it.  

Producers and cast and crew may want to contact the Media Entertainment Arts Alliance on 1300 656 512 to find out its position on deferred payments.

Thank you to Raena Lea-Shannon of Michael Frankel & Co for her comments.

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