The Hot Cost Report – Knowing Film Payroll

On Sept 2, 2013 I finished a Hot Course Online Course – see this YouTube link for more info

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Original article:

About 2 or 3 times a month I get a comment on this blog asking me if I can send a copy of a Hot Cost. From the tone of the request I sense that I am the last resort and the Hot Cost is a matter of getting the job as a key accountant or not getting it. I always oblige, but with a cringe because I know that without the background understanding of film and television payroll the Hot Cost won’t mean a whole lot to them.

Anyone who has been working in film production accounting, or as a Unit Production Manager, knows that “Hot Costs” exist, and they may have seen them. But it’s the key production accountant who prepares them. They’re a bit of a pain to set-up; however, once in place they’re easy to maintain.

I have written only one other blog about Hot Costs, mainly because it requires a pretty good understanding of payroll, as well as Excel, to really understand the background of it all.

For those of you who missed my earlier blog, I’ll start out by defining, in my own words, what a hot costs is:

– The Hot Cost is essentially daily report which compares the actual variable labor costs with the budgeted labor costs for every person on set. A few other variable costs are compared to budget on the topsheet of the Hot Cost, especially if it’s easy to measure them on a daily basis – like the costs of catering, or, if shooting in 35mm, the cost of raw stock, processing and work prints. Since 35mm is seldom used anymore, that’s gone by the wayside.

Boiled down, the, the Hot Cost is really all about measuring the daily cost of labor (Cast and Crew) with the budgeted amount of daily labor.

The Ivory Tower:

The Film Production Accountant prepares it, and usually the assistant accountants are too busy to get involved – or, if they have some time, the key accountant is too busy to show them. This task is seldom allocated to an assistant (unless the film production is obscenely huge). It is the one task which mystifies most assistant accountants, simply because they are seldom involved directly in preparing it. Another drawback that I’ve noticed with assistant accountants in the last 10 or 15 years is a tendency to specialize in one area, such as running the general ledger duties, but ignoring the payroll duties; or, being pigeon-holed as a payroll accountant only, and not understanding the cost report duties. I have had some pretty nervous requests to explain Hot Costs as a 1st Assistant starts to reach toward being a Key Production Accountant, mostly because of their continuous specialization, rather than understanding all facets of film accounting.

The Daily Production Report (DPR):

Each day the Assistant Director’s prepare a “Daily Production Report”. The In/Out times, as well as the lunch break, is recorded on the DPR. Every person who worked on set is named along with their title. In addition, the DPR shows all the times related to each and every actor, the number of lunch plates, the page count shot (per the Script Supervisor),any notations of accidents/delivery of major equipment/illnesses, etc.

Click on the link to see an example of the front and back pages of a DPR:

DPRBack  DPRFront

Understanding Payroll:

Once you get a grasp the union rules you’ll start to wonder what all the fuss was about. No matter what union contracts you’re dealing with, each Union has broken down their rules into the following 4 categories:

1. The “Basic Day” and Overtime Rules

2. The penalties associated with “Rest Violations” (also called “Turnaround”).

3. The penalties associated with violating Meal Periods (called “Meal Penalties”).

4. The various circumstances associated with Travel – whether to a “Distant Location” (i.e. staying in a hotel), or travelling outside of a defined “Studio Zone” (also often referred to in each locale as “The Circle”).

For those of you newly exposed to Screen Actors Guild, the various IATSE (crew) Locals and the Teamster (driver) Locals, it may seem a little too much, it’s MUCH easier than learning to use Excel – so, have a little patience, do a lot of practice time cards, and you’ll have it.

Conversely, for those of you who have had to hide behind being a Payroll Accountant, but never had exposure to the Cost Report, have no fear. It’s much easier to learn than the other way around (check out my blogs that begin with #1 of 7 through to #7 of 7).

The Excel Task:

Once you have a grasp on the SAG and crew payroll rules, the task ahead of you is to set-up a hot cost format that can quickly estimate the cost of labor for the day and compare it to the budgeted cost per day – for each and every person working on the set. Kind of a tall order “right out of the box”. If you’re using Excel, the only efficient way to do a Hot Cost, you should be able to copy paste the previous day’s time out, enter in the In/Out times of the day your analyzing (i.e. yesterday) for each person, then have the Excel formulas do the rest.

The Payroll Solution to Understanding Hot Costs:

The solution to understanding any Hot Cost is to find a central source of contracts for SAG, DGA and IATSE then summarize the four rules mentioned above. Then have someone show you their version of Excel formulas which comply with these central rules. At the risk of shameless self-promotion, I have done that, one union at a time for each of SAG, DGA, IATSE National Low Budget (any feature or TV production in North America less than $13Mil) and IATSE Area Standards (any feature or TV production greater than $13Mil outside of the Los Angeles and New York zones). I have a general Teamster contract for the non-LA/NY areas, but, honestly, it’s child’s play to understand after learning the above. Actually, it is not a problem for me to say that if you understand SAG, DGA, IATSE Low Budget and IATSE Area Standards you can work anywhere in America or Canada – it would only be necessary to get a copy of the local contracts in those higher production centers and you’d be ready in a day or so.

The Training and the Practice:

I’ve found that a full weekend practicing the film and television payroll rules, followed up by on-line links to all the materials, is plenty for your average person to learn how to calculate the union/guild payrolls to “gross” (i.e. to the gross amount of pay due before union and government benefits/deductions). I also supply templates (yes, with the formulas) which are “helpers” ad which you can use to develop your own Hot Costs, no matter the circumstances. I leave you with on-line links to all of the materials – see this link to get an idea of what I mean.

Have a look at this link to a short video of how my SAG on-line course works.

Check out http://www.talkfilm.biz  if you need some more info about cost reports, production accounting, managing film budgets, etc.

Cheers,

John