We have been hard at work these last few weeks de-mystifying the ACA–as much as we can in any case. If you missed those posts or would like a review, you can find them here, here, here and here. Let’s assume that you: a) have enough employees to be on the ACA Radar; b) have counted the full-time employees on your payroll; c)offered them and their dependents affordable coverage with minimum value. Sounds like you’re good to go, unless…you contract with a staffing company to temporarily augment your workforce. Who is the employer of those “temps”? You? The staffing company? Both? Do you have to offer them coverage too? Does the very thought give you a headache? How might you address this issue without breaking the bank? Take two aspirin — and join The EmpLAWyerologist after the jump!
I know the mere mention of the Internal Revenue Code can be enough to send shivers down anyone’s back, but that is where we must turn for guidance, so hang in there. Section 4980H addresses”Applicable Large Employers” (ALE’s) (i.e. 50 or more full-time employees or full-time equivalents) who either extend or fail to extend an offer of minimum essential coverage to its eligible employees under an eligible employer-sponsored plan. Section 4980H assumes two parties, an employer and an employee. What happens then, when there are three (or more) parties involved– for example, when a company hires employees through a staffing firm? Section 4980H states that one who is a “common law employer” and subject to the ACA must offer coverage to those performing services for it.
Now, you may remember prior posts on joint employment, in which I have made it very clear that you are likely a joint employer if you use a staffing company to augment your workforce. (Click here for review.) That remains true — except when it comes to taxes and benefits. The IRS does not recognize the concept of joint employment. For tax and benefits purposes, there is one common-law employer, who is responsible for offering ACA-compliant benefits to employees.
When one or more workers are subject to the will and control of an entity, both as to what shall be done and how it shall be done, that entity is a common law employer. The entity need not actually control the way in which services are performed — having the right to control is the key here. If you are determined to be a common law employer of those contingent workers they are counted to determine first if you are subject to the ACA’s Employer Mandate. If so, and if they are full-time employees within the meaning of the ACA, you must offer them workers compliant coverage.
Are you a common law employer? The general rule is that if you use a staffing firm to supply you temporary workers to augment your workforce on a short-term basis –say a few weeks or maybe even a few months–then the staffing firm is the common law employer. (In contrast, a PEO, which does control the workers, is generally not a common law employer.) That means that the staffing firm must then determine if those temporary employees are eligible for an offer of compliant health insurance. The staffing company will have to figure out if those employees work on the average at least 30 hours a week for the staffing firm. (I am not going to get into how that is done right now, but may do so in a future post if enough people express need/interest.) That is certainly good news for you if your use of “temps” fits this definition. What if you use temps on a longer-term basis (they are sometimes referred to as “perma-temps”?) In that case you, and not the staffing company may be the common law employer. Does that mean you can no longer hire temps on a long-term basis? Do you now have to impose breaks in service after a few weeks or months? No! You have two options:
- Establish, or see if the staffing firm will establish or has a Multiple Employer Welfare Arrangement (MEWA), a group plan covering two or more employers. This option has not been very popular as it is subject to both federal and state regulation. If the MEWA is fully insured (as opposed to self-funded) it is not an option for “small groups” in many states. (“Small” will often be defined by each state);
- Offer of Coverage Safe Harbor: Under Treasury Regulation §54.4980H-4(b)(2) a staffing agency can offer its contingent workers coverage under its group plan, and the offer will be treated as if it was made by the client company, IF: a) the staffing firm is NOT the common law employer (if it is then it is already obligated and you are “off the hook”); and b) “the fee the client employer would pay to the staffing firm for an employee enrolled in health coverage under the plan is higher than the fee the client employer would pay the staffing firm for the same employee if that employee did not enroll in health coverage under the plan”.
In other words, if you are the common law employer of the contingent(s) and if the staffing firm offers the contingent(s) coverage under its group plan there must be an increase in the fee you would have otherwise paid the staffing agency if it was not offering insurance to the contingent worker(s). While the regulation does not say how much the fee must be or how it is to be administered, I recommend you use common sense here. If the fee is ridiculously low, the IRS may cry “Abuse” and start re-classifying your c contingents and fining you accordingly.
Bottom line: Either the staffing firm is already the common law employee and you are “off the hook”; or you could avail yourself of a MEWA or the Safe Harbor described above, for a reasonable fee. While you may not relish the idea of paying a staffing company more money, it probably costs you less in the long run — and eliminates major headaches.
While I’m sure there may be other ACA-related posts in the future, we’re going to move on to a new topic next week, so don’t go away!
Disclaimer: This post’s contents are for informational purposes only, are not legal advice and do not create an attorney-client relationship. Always consult with competent employment counsel on any issues discussed here.
Click here to download my webinar on Joint Employment, which aired at 1 p.m EST Tuesday November 25, 2014.
Click here to register for my webinar on What Employers Need to Know About Their Severance Arrangements on February 11, 2015.
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