The ACA requires “applicable large employers” (those with 50 or more employees) to offer health coverage meeting affordability and other standards to their full-time employees. Failing to offer minimum essential coverage to at least 95% of full-time employees, or offering coverage that is not “affordable,” may result in significant penalties if a full-time employee receives a federal premium tax credit to purchase coverage through an ACA exchange. A full-time employee is one who works on average 30 or more hours per week or 130 or more hours per month. The hours of part-time employees are converted to full-time equivalents to determine whether a business is an applicable large employer, but only full-time employees must receive offers of complying coverage.
The ACA regulations define the term “employee” with reference to the common-law standard and assume that most workers are employees. Generally, an employer has the right to control and direct the individual who performs the services, not only as to what work is to be done, but how, where and when it is to be accomplished.
As budgeting and workforce planning for 2017 is underway, now is a good time to catalogue and assess your existing and planned staffing arrangements to determine who are and who may be deemed to be your employees by looking closely at the following:
- Independent contractors performing work that is long term or fundamental to your business could be deemed your employees. Consider them carefully, especially if you are near the 50-employee threshold or if their addition to your workforce could cause you to fail to offer coverage to at least 95% of your full-time employees. Review your accounts payable records, and scrutinize carefully any payments made to someone who uses a Social Security number as their Taxpayer ID number.
- Examine your employee census for “temporary employees,” and review your medical plans to determine whether they are or should be covered. If full-time, they are considered in determining whether you offer coverage to 95% of your full-time workforce, and, whether full or part-time, they are included in calculating full-time equivalents to determine whether you are an applicable large employer.
- If you utilize a Professional Employment Organization (PEO) — an organization that hires your employees and provides payroll, benefits and other HR support — then you should review your contract to insure that the PEO offers minimum affordable coverage to each full-time member of your staff and that you are charged an appropriate, additional fee for each employee who elects coverage. The ACA regulations offer this way for the employer to provide required coverage, but the arrangement has other serious benefits implications and should be analyzed closely and in consultation with legal counsel.
- Payrolling — where the client recruits and refers workers to a staffing company that acts as their employer — is a gray area between a PEO and a traditional staffing agency model that may receive heightened IRS scrutiny. Examine payrolling arrangements carefully and weigh their risks and advantages compared to true PEOs and traditional staffing companies.
- The IRS generally takes the view that employees of temporary staffing agencies are employed by the agency and not the client company. If you use a staffing company for temporary labor, review your contracts and practices to reinforce that the arrangement is not a PEO.
Key takeaway: Companies that classify all of their workers properly are best positioned to be found in compliance with ACA requirements.