AB-5 Impacts Employment Relationship Between Arts Fiscal Sponsors + Fiscally Sponsored Arts Projects

Historically, small non-profit arts organizations (SNPAOs as described in SB 1116, 2022) pay artists as contractors compensated at a less than hourly minimum wage. To bolster business operations and capacity to raise funds some SNPAOs become fiscally sponsored arts projects of arts fiscal sponsors. Prior to AB-5, California arts projects under fiscal sponsorship were primarily run by project directors and artists working as independent contractors. However, to comply with AB-5 some arts fiscal sponsors have converted independent contractors to employees.  

Executive leadership and Boards of Directors of arts fiscal sponsors have had to search for compliance guidance from California employment law advisors who also are unclear about interpreting AB-5’s employment requirements for artists. Ultimately, arts fiscal sponsors that implement AB-5 to the letter of the law have taken on additional responsibilities and liabilities by becoming the Employer of Record for project directors and artists of fiscally sponsored arts projects. Fiscal sponsors have had to hire more staff and develop expertise in interpreting, advising and implementing employment services on behalf of the fiscally sponsored arts projects. Additionally, arts projects with employees now need to generate additional funds to both cover payroll costs and the cost of the fiscal sponsor’s administration of employment benefits and services. 

Research Study
Dr. Amy Kweskin, Principal of Artsightful, under the guidance of Dr. Anne W. Smith, conducted a qualitative study in 2023 examining the result of AB-5 compliance on six arts fiscal sponsors in San Francisco. The research, conducted via written surveys and Zoom-based one-to-one interviews, resulted in a hyperlocal case study of an anonymous arts fiscal sponsor and its fiscally sponsored arts projects. Participants included Executive leaders, Board members, administrative staff, a California employment law expert as well as project directors of fiscally sponsored arts projects.

(Full research study: Exploration of California worker status law compliance on arts fiscal sponsors and fiscally sponsored arts projects: A case study.)

4 Key Themes of Compliance Concerns

Four Key Themes and correlating sub-themes emerged from the study: cost, comply, change, confuse. What follows are definitions of the Key Themes supported by verbatim statements gathered anonymously from study participants.

1. Comply

Describes the origins of AB-5 in relation to the Gig worker platforms Uber and Lyft that result in fiscal sponsors and arts projects needing to design and implement business policies, procedures and systems to adhere to the law. 

Lyft and Uber Gig Platforms

• “AB-5 was basically designed to counter the Ubers and the Lyfts of the world. It was not designed or implemented or put in place to affect the arts. In a lot of ways they were cannon fodder for the bigger target” (Legal expert on California employment law). 
• “But Lyft and Uber lobbied to get out from this bill” (Project Director of a fiscally sponsored arts project). 
• “The rest of us just got left with it and there didn't seem to be an acknowledgement from the state legislature” (Executive leader of an arts fiscal sponsor). 
• “Now it's not even protecting the people it was supposed to protect and it is just negatively impacting these smaller arts organizations” (Administrative staff of an arts fiscal sponsor).  

Sub-Theme: Artists as Employees

• “All of these positions that had previously been independent contractors for years suddenly needed to be onboarded as employees” (Project director of a fiscally sponsored arts project).

Sub-Theme: Compliance 

• “It'd be great to have like a workshop or a webinar or something… checklist of things that you need to consider when you're hiring people as independent contractors and make sure that we’re in compliance” (Project director of a fiscally sponsored arts project).

Sub-Theme: Employment Benefits

• “I mean the good side of AB-5 is that as artists we need to be paid. Right. We need to be paid and we need to be given benefits” (Project director of a fiscally sponsored arts project). 
• “As an artist, I think there’s a huge difference between gig and creating” (Board member of an arts fiscal sponsor). 
• “I'm kind of like, yeah, that’s kind of a good fat paycheck that I’ve never received from my acting so I get it that maybe the intention was in a good place, but some organizations like us are getting impacted by this” (Project director of a fiscally sponsored arts project). 

2. Confuse

Describes risk and emotional responses such as anger, frustration, panic, and fear related to confusion about AB-5’s impact on fiscally sponsored arts projects, independent contractors, employees, and the arts sector at large.

Sub-Theme: Risks 

• “They are asking themselves if they should try and comply and fail or take the risk. There is a risk of a lawsuit or that the state comes after them. But if compliance puts them out of business we have no choice” (a legal expert on California employment law). 
• “From the employer's side, my god, it's such a moving target practice” (Administrative staff of an arts fiscal sponsor). 
• “I just don't get it. I really don't get it” (Project director of a fiscally sponsored arts project).

Sub-Theme: Emotional Response

• “We now have to comply to this, you know, like I don't even understand all this stuff” (Project director of a fiscally sponsored arts project). 
• “The panic amongst working artists this law caused meant they looked to us for guidance, when we had no better understanding of the issue” (Executive leader of an arts fiscal sponsor). 
• “I’m so angry and tired” (Project director of a fiscally sponsored arts project). 
• “I am super frustrated with the bill” (Project director of a fiscally sponsored arts project).

3. Change

Describes the result of AB-5 on fiscal sponsorship models as it impacts relationships between arts fiscal sponsors and fiscally sponsored projects in relation to operations, procedures, workload, and staffing structure.

Sub-Theme: Impact and Change 

• “It is something that is unfolding as we go. This is something that we all keep figuring out as we all move on it” (Executive leader of an arts fiscal sponsor)

Sub-Theme: Support 

• “How do we support the project directors” (Executive leader of an arts fiscal sponsor)? “As a society and a government, we have a lot of work to do to find a balance that supports” (Board member of an arts fiscal sponsor).

Sub-Theme: Fiscal Sponsorship Model 

• “The general outlines of a Model C relationship just don’t fit well with an employer-employee relationship” (Executive leader of an arts fiscal sponsor).
• “Model A is the comprehensive fiscal sponsorship where they’re legally rolled into us” (Executive leader of an arts fiscal sponsor).

Sub-Theme: Relationship 

• “In some ways, it actually connected the fiscal sponsor with the sponsorees even more so” (Board member of an arts fiscal sponsor).

4. Cost

Describes the financial, human and technological resource investments required for AFS-Z, fiscally sponsored arts projects and artists to comply with AB-5.

Sub-Theme: Funding & Resources 

• “I'd say across the board the additional cost has just been a shock and a challenge” (Executive leader of an arts fiscal sponsor).

Sub-Theme: Costs & Liabilities

• “It's killing us! It's killing us” (Project director of a fiscally sponsored arts project). 
• “I think that it might also then cause artists to leave California, because of the cost of just operating here” (Board member of an arts fiscal sponsor). 

Additional research into AB-5 compliance is needed as indicated by CA Arts Advocate and CEO Julie Baker on August 18, 2023 at the Adapting in Crisis: Toward a Resilient Performing Arts Sector convening in Sacramento, CA. “We are not against AB-5. We believe artists should be paid a living wage. As an industry we are undercapitalized.”