I agree with you.  I don’t know what your treasurer means by “contract employees.”  Normally the distinction is made between employees and independent contractors.  Employees normally work for continuous periods under the control of the employer, usually when, where and how they are told by the employer, and usually with tools and equipment supplied by the employer.  Independent contractors normally work for others as well and provide their professional skills on a project basis with more flexible times and methods of performance.  (See Ready Reference Page: “Classify: Employee or Independent Contractor”) 

Organizations must withhold wage taxes for employees and provide workers’ compensation insurance and unemployment compensation if required.  They pay independent contactors like you play your electrician, who is clearly an independent contractor.  It sounds to me as though you could hire local artists to provide their professional services for short term projects to rejuvenate old sets and legitimately treat them as independent contractors.

I don’t know what script your actor friend was reading, but there is no such thing as “the 501(c)(3) incorporation act.”  The federal 501(c)(3) charitable tax rules apply to entities beyond corporations, and state nonprofit corporation laws apply to corporations beyond 501(c)(3) charities. It is not a violation of either 501(c)(3) federal tax law or state nonprofit corporation law to pay reasonable compensation to vendors of services for services rendered.  You might want to gently remind your actor that acting like a lawyer doesn’t make it so.