Recouping Salaries Of Label Staff - Traps & Scams Every Musician Must Avoid

Quick truth. Labels and label adjacent companies sometimes try to recoup staff salaries from artists without clear justification. That means your future royalties pay for people you did not hire and sometimes for work that did not help your career. This guide pulls off the mask, explains the legal and accounting tricks, and gives you savage but practical moves to protect your money and your music.

Everything here is written like your brutally honest best friend who also happens to know contracts. We will cover common contract language, accounting tricks, what audits actually find, negotiation playbooks, sample clauses you can ask for, and real life scenarios that show the scam in action. You will walk away knowing what to sign and what to slam the brakes on.

Why you should care

If you signed a record deal or a services agreement you probably received an advance. That advance is typically recoupable. Recoupable means the label can take money back from your royalties until the advance and other listed costs are recovered. If staff salaries are included in those listed costs you can end up paying producers, A and R staff, marketing personnel and even interns out of your future earnings. That can turn a hit record into a long term debt bag for the artist.

This gets worse when expenses are vague or broad. Labels do not always share how staff time was allocated between releases. Without transparent itemization you are paying for people on a payroll that might be working across many projects. You need to learn how to spot the traps and how to fight for specifics that limit or remove staff salary recoupment from your deal.

Key terms you must understand

We will explain every term you see in deals and royalty statements. Learn the words and you will stop being gaslit.

• Recoupment This is the process where the label takes back money it advanced by deducting it from your royalties. Think of it like a loan that gets repaid from earnings.
• Advance A payment the label gives you up front. Advances are usually recoupable, not refundable to you if you walk away, and they are paid against future royalties.
• Royalties Payments you get for sales and streams of your recordings. Royalties are often split into master royalties and publishing royalties. Masters are the sound recordings. Publishing is the composition and lyrics. Labels usually control master royalties.
• Net receipts This is the label accounting term for the money they actually received from distributors, platforms and licensees after certain deductions. Net receipts are the base that royalty rates are applied to. Labels love to define this broadly so the base becomes small.
• Packaging deduction A percentage the label sometimes takes off for physical packaging costs. Watch this if physical sales are a part of your deal. It can be used as a way to shrink your royalty base.
• Cross collateralization This means earnings from one project or revenue stream can be used to recoup expenses from another project. That can leave older or successful releases funding newer projects without your consent.
• Audit rights Your right to inspect the label financial records and royalty statements. This is gold. Make sure you have it and that it is usable within a reasonable time window.
• 360 deal A contract where the label takes a percentage of multiple income streams like touring, merchandise and publishing. These deals make it easier for labels to recoup staff salaries across many revenue buckets.
• Overhead General company costs that labels sometimes allocate to artists. Overhead expenses can include salaries for A and R teams, finance staff and marketing staff.

How labels justify recouping staff salaries

Labels use a few persuasive but sketchy arguments to put staff salaries on your invoice. Here are the common narratives and the reality for each.

Story 1: Everything is part of promotion

What they say. The label claims A and R, marketing, promo and management support are necessary and therefore billable components of artist development expenses that are recoupable.

Reality. If staff time was clearly and exclusively spent on your project then an argument could be made for allocation. In practice labels often charge a pro rata share of staff payroll across many artists. You end up paying even if the staff did not deliver measurable service for you. Demand time records and task reports that show work done for your project specifically.

Story 2: We run a label so payroll is part of doing business

What they say. Payroll is a normal business cost and artists should pay a portion of overhead when they sign to the label.

Reality. Overhead for a company is normal. That does not mean it is fair to offload general overhead to new artists without caps and proofs that the work was directly linked to the project. Ask for categorical limits and audit rights. If they insist on overhead charges demand a cap or a fixed monthly fee that is not recoupable.

Story 3: This is standard in a 360 deal

What they say. If you accepted a 360 deal the label will claim they earn commissions on many revenue streams and that recouping staff salaries is part of the integrated service.

Reality. 360 deals expand the label reach, but they also expand the label ability to recoup. Negotiate carve outs. For example exclude publishing and live income from staff salary recoupment or limit the recoupment period to a short time after release. Always ask for transparency and an audit friendly structure.

Red flags that mean danger

These are the contract lines and accounting details that should make you scream into your hoodie and call your lawyer immediately.

• Blanket recoupable overhead Language that allows the label to recoup any business expense including staff salaries without requiring itemized proof.
• No audit clause or a useless audit clause If you cannot audit within a reasonable period or if the contract requires audits to be at your cost with no refund for underpayment you are in trouble. Audits must be done by an independent accountant and must have a reasonable discovery window.
• Cross collateralization across all deals If the contract allows the label to move money across every release, publishing right and income stream your revenue structure can be cannibalized.
• Vague definitions Terms like reasonable costs, administrative fees, general and administrative expenses, or allocated overhead without definitions are the fastest way for a label to bill anything they want.
• Excessive reserves for returns Reserves are amounts the label withholds to cover returns and chargebacks. If these are unreasonably high and not reconciled within a fixed time frame you are losing money.
• No sunset clause for recoupment If recoupment never ends until the label decides to stop charging you may owe royalties forever even if you stopped working with them years ago.
• Staff salary line items without timesheets If payroll is billed and there are no time reports to show payroll allocation you are being billed for imagination.

Real life scenario: How the scam plays out

Meet Zoe. Zoe signed to a mid sized label. She received a fifty thousand dollar advance and an enthusiastic onboarding call. Six months later the label sends her royalty statement showing zero earnings because the advance was recouped by a long list of expenses. Zoe recognizes some items like music video costs and producer fees. The rest of the list says label payroll allocation, marketing overhead and administration fees that total thirty five thousand dollars. Zoe never met half the people on the payroll list. She asks for proof. The label sends a spreadsheet with percentages but no timesheets. The spreadsheet allocates tens of thousands of payroll dollars across five artists without showing how time was spent. The net effect is Zoe has to pay her producers out of nothing and still does not see royalties.

This story repeats a thousand times where artists accept initial paperwork, assume the label is on their side and do not push for line item receipts. If your contract allows broad payroll recoupment and you do not have solid audit rights you are vulnerable.

How labels structure the accounting to hide salary recoupment

If you have ever opened a royalty statement and felt your eyes melt this is why. Labels use accounting moves that make allocation opaque.

• Pro rata allocation Payroll is allocated across artists by percentage estimates rather than time records. That allows a label to charge an artist even if minimal staff time was spent on their project.
• Allocated overhead Salaries are rolled into a general pot called overhead. Then the pot is split across all projects. Overhead can include rent, utilities and payroll.
• Third party invoices Labels hire third party companies to supply services. The label pays the third party and then bills the artist back via affiliate invoicing. The label can mark up or roll costs into recoupable expenses.
• Inter company charges If the label has sister companies they can move costs between entities and bill the artist for the same cost twice in different forms. Contracts lacking anti double billing language are at risk.
• Administrative percentages A line that says administration fee of up to ten percent can slice your royalty base without you seeing clear justification.

What to demand in the contract to protect yourself

Negotiation is defense. Say no to vague language and yes to hard rules. Here is a checklist to ask for in every deal.

1. Itemized billing only

Demand that any payroll or staff related recoupable charge be accompanied by time sheets or detailed task reports showing dates, hours and tasks that were specifically and exclusively performed for your project. No spreadsheet allocations with arbitrary percentages. If they push back ask for an agreed format and frequency for those reports.

2. Cap or carve out payroll

Negotiate to remove staff salaries from recoupable items entirely. If the label refuses ask for a cap expressed as a fixed amount per release or a percentage of the advance. For example payroll allocation will not exceed five thousand dollars per release and will include attached time records. That keeps numbers predictable.

3. No cross collateralization across non related rights

Ask for cross collateralization limits. For example allow cross collateralization only across master recordings under the same deal and only for a limited period. Exclude publishing, touring and merchandise from being used to recoup label payroll.

4. Sunset clause for recoupment

Add a sunset clause. That means recoupment can only apply for a fixed period after release. A common reasonable window might be twenty four months after release or until a specified dollar cap is reached. After the sunset the label cannot keep recouping staff costs from that recording.

5. Audit rights with practical windows

Ensure your contract gives you audit rights with at least a two year discovery window and the right to audits by an independent certified public accountant at your option. Limit the cost exposure so that if the audit reveals underpayment above a threshold you get the audit cost covered by the label and interest on the unpaid amounts.

6. No double billing across affiliates

Require language that prohibits double recovery across affiliates. If the label bills you for a vendor invoice the vendor cannot bill you or another affiliate for the same service again. Inter company charges must be transparent and supported by vendor invoices.

7. Define what is recoupable with examples

Contracts that define recoupable expenses with a long list of explicit allowable items are easier to fight than contracts that say broadly reasonable costs. Ask for examples and explicit exclusions. For example exclude general corporate payroll, rent, legal fees unrelated to the artist and head office overhead that is not project specific.

8. Require prior written approval for certain expenses

For any expense above a negotiated threshold require your prior written approval. This gives you leverage over big line items like music videos, large marketing campaigns and staffing allocations that will be billed to you.

Sample contract language you can ask your lawyer to insert

Below are plain language samples. Have your lawyer convert them into legalese and check local law. These are the kind of precise rules that stop shady accounting.

Sample 1. No payroll recoupment clause

Label will not recoup any salaries wages payroll taxes employee benefits or similar compensation paid to label employees from Artist royalties or other Artist source revenues. Label may provide payroll services as part of artist services but any fee charged will be non recoupable.

Sample 2. Itemized allocation clause

Any amount the Label seeks to recoup for personnel costs will be supported by contemporaneous time entries identifying the individual date of service the hours worked the task performed and the specific project for which the work was performed. Such entries will be produced to Artist on request and payment by Artist will not be due until such entries are provided.

Sample 3. Cap and sunset clause

Label may recoup personnel related costs in an aggregate amount not to exceed Ten Thousand Dollars per album release Such recoupment may occur only for the twenty four month period following the album release date and shall not be cross collateralized against Artist publishing or live performance revenue.

Sample 4. Audit clause with remedies

Artist may audit Label records related to royalties and recoupable costs for the prior four year period upon thirty days notice. If an audit reveals an underpayment in excess of Two Thousand Dollars Label shall promptly pay the deficiency plus interest at the rate of five percent per annum and reimburse Artist for the reasonable cost of the audit.

How to audit and what to look for

Audits feel like a nuclear option but they are often the only way to expose creative accounting. If you have audit rights here is a practical plan.

Step 1. Hire an experienced music industry auditor

Not every CPA understands music accounting. Hire someone who has worked with labels and has a history of successful audits. Ask for references from other artists who recovered money.

Step 2. Scope the audit

Decide the period and the revenue streams to be audited. Focus on royalty statements with large payroll allocations or where you suspect re allocations across projects. If you do not have resources start with a sample period and the biggest line items.

Step 3. Demand source documents

Ask for vendor invoices payroll registers timesheets banking ledgers and inter company invoices. These are the documents that prove whether payroll was charged appropriately.

Step 4. Check for double billing

Look to see if the same vendor invoices appear in multiple cost pools or if payroll was charged both as payroll and as overhead allocation. Also check if vendor invoices were marked up or if affiliate entities were used to rebill the same cost.

Step 5. Reconcile royalty base math

Take the gross revenue figures and trace them to distributor statements. Confirm that the net receipts base matches external receipts when possible. If the label is subtracting phantom costs the math will not reconcile.

Step 6. If you are owed money seek remedy

Successful audits often lead to negotiated settlements. Demand a full accounting correction interest and reimbursement for audit costs when the underpayment threshold in your contract is met. Your lawyer should prepare a demand letter and a plan to escalate if necessary.

How much can staff salary recoupment actually cost you

Let us do a simple example so you see how numbers cascade. These are round friendly numbers and not legal financial advice. The goal is to help you see scale.

Example

• Advance to artist: Fifty Thousand Dollars
• Producer fees and studio costs: Fifteen Thousand Dollars
• Music video: Ten Thousand Dollars
• Label payroll allocation claimed: Twenty Five Thousand Dollars
• Total recoupable claimed: One Hundred Thousand Dollars
• Royalty rate to artist: Fifteen percent of net receipts
• Net receipts per stream or sale variable but assume a sale nets one Dollar

Under these numbers you need about Six Hundred Sixty Seven Thousand sales to clear One Hundred Thousand Dollars at fifteen percent. If payroll allocation did not exist you would need far fewer sales. That payroll line alone increases your break even by a massive multiple. If payroll had been capped at Five Thousand Dollars your break even would be much lower and you would reach payout sooner.

Negotiation psychology: How to make the label accept limits

Labels think in risk and upside. Your job is to show them that limiting payroll recoupment reduces accounting fights and speeds payout which is good for both parties. Here are tactics that work.

• Offer a higher non recoupable advance If the label wants payroll exposure offer to take a slightly smaller advance that is non recoupable or ask for a marketing spend in the label budget instead of payroll recoupment. This makes the label invest directly rather than rebill you later.
• Propose a fixed services fee Offer to pay a monthly label services fee in exchange for non recoupment of payroll. That gives the label cashflow and limits their ability to hit you later with surprise charges.
• Bring data Show streaming or fan metrics that prove an investment will likely pay. Labels respond to proof that a release will move money. Use this to negotiate caps because you can promise specific deliverables.
• Push for audit friendly language If they resist eliminating payroll recoupment push for strengthened audit rights and audit remedies. Labels hate being audited when accounting is loose. Making audit easy often forces them to tighten their books.

What to do if you already signed a bad deal

Not every contract is reversible. If you are already under a deal with payroll recoupment here are practical moves.

1. Do the audit

If you have audit rights use them. Even one successful audit will force labels to stop using lazy accounting and may get you money back.

2. Renegotiate at renewal

If you are approaching the end of a term start renegotiating early. Come with numbers that show what you actually earned and how payroll recoupment hurt your cashflow. Offer concessions like co investment in exchange for payroll carve outs.

3. Use performance metrics

If you delivered streams sales or audience growth, use that data to bargain. Labels want growth. If you can show you are delivering then you have leverage to demand better terms for future releases.

4. Consider the exit options

Sometimes the best financial move is to leave and regain rights. Calculate long term earnings projections and compare that to the cost of staying. If necessary consult an attorney about termination clauses and rights reversion.

Checklist to use before signing anything

• Do I understand every recoupable expense listed
• Does the agreement allow payroll or staff salaries to be recouped
• Is there an audit clause and is it usable and fair
• Is cross collateralization limited and does it exclude publishing and live income
• Is there a sunset clause for recoupment and is the time window reasonable
• Are vendor invoices and time records required for payroll charges
• Are inter company charges and double billing prohibited
• Is there a cap on overhead allocations and administrative fees
• Do I have the right to pre approve large expenses and staff related costs

Simple scripts to use in negotiation emails

Here are short direct lines you can paste into an email to label reps or your lawyer. Keep it blunt and polite.

• Please remove staff payroll from recoupable expenses or provide a detailed time tracking format that we will use for any payroll invoiced back to the project.
• We will accept a fixed services fee of X dollars per month in exchange for no payroll recoupment for personnel assigned to this project.
• Cross collateralization will be limited to master recordings under this agreement and will not include publishing merch or touring revenue without express written consent from the Artist.
• Artist reserves the right to audit label records for the prior four years with remedial payment plus interest and reimbursement of audit costs if underpayment is discovered.

Frequently asked questions

Can labels legally recoup staff salaries

Yes if the contract allows it. Contracts that list personnel costs or allocated overhead as recoupable give the label the legal right to deduct those costs from your royalties. The problem is not legality. The problem is fairness and transparency. You can negotiate limits and auditing to keep that legal right from being abused.

Are publishing royalties affected by staff salary recoupment

Publishing royalties are usually separate and collected through publishing administrators or performance rights organizations. If your deal is a 360 deal or explicitly cross collateralizes publishing the label might try to use publishing to recoup costs. Always keep publishing carved out if possible. Publishing revenue should not be used to pay label payroll unless you explicitly agreed to that.

What if the label refuses to provide timesheets

Refusal to provide timesheets is a major red flag. Ask for contract language that requires contemporaneous records as a precondition for payment. If they refuse you can threaten to withhold consent for billed items above a threshold until documentation is provided or escalate to a lawyer. In extreme cases an audit request can compel production of records.

How often should I audit

Many artists audit every two to three years. If you have reason to suspect bad accounting audit sooner. Auditing too often can be expensive. Use the audit only when you see suspicious statements or when a large payroll allocation appears. The audit clause should define frequency and cost allocation when underpayment is found.

Can small labels recoup staff salaries just because they are small

Yes but small labels are often more transparent and collaborative because they need good relationships with their artists. Still ask for itemization. Small labels may legitimately allocate staff time across projects. You simply want proof and limits so your band does not unknowingly bankroll the entire office.

Action plan to protect yourself today

1. Ask to see the exact contractual language about recoupable expenses. Highlight any mention of payroll salaries or overhead.
2. Demand an itemization format and insist that payroll amounts be supported with contemporaneous timesheets or signed task reports.
3. Negotiate for a cap or carve out for personnel costs. If the label will not remove payroll ask for a low fixed cap per project and a sunset clause for recoupment.
4. Confirm audit rights in writing and discuss the audit process with your lawyer and an industry savvy CPA so you know how to execute if needed.
5. If you already signed a deal get your first royalty statement reviewed by a trusted accountant. If payroll charges appear start by requesting documentation. If denied pursue an audit if you have that right.

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