As employers are developing their health insurance open enrollment plans in the next month or two, they will most certainly be working to ensure they are well positioned for the Affordable Care Act’s employer mandate, which is set to become effective for companies with 100 or more full-time employees in 2015. Most employers are well aware of the implications for their permanent workforce, but we suspect that many remain unaware of what it means to them if they engage temporary staff and independent contractors.
The IRS, the Department of Labor and the Department of Health and Human Services will all be monitoring yourcompliance with the ACA to enforce aspects of the employer mandate, so it is important to plan ahead and ensure your organization is prepared. The biggest risk we see is for organizations that intend to avoid providing health insurance benefits by moving staff from full-time to less than 30 hours/week, or by shifting jobs from permanent employee to temporary staff or independent contractor status.
First, let’s recognize that the ACA rules have been changed and delayed numerous times already, so if the 28/hour work week is your strategy, you’re likely to be disappointed if/when the rules change to mandate that all employees over 20 hours/week must be provided with insurance. Second, if you have decided to pay the fine instead of providing benefits because it’s less costly, you will also be disappointed when the fines rise over the coming years.
Given those likely outcomes, the shift to fewer permanent staff and more temporary/contingent labor seems like a more sustainable, lower-cost, long-term option for employers trying to reduce the financial impact of the ACA. One advantage of this approach is that you can remain fully staffed without cutting customer service or productivity. Another advantage is that the staffing firm is the Employer of Record and is, therefore, the company responsible for providing health insurance.
Of course, temporary staffing firms will likely need to pass along the increased cost, which is expected to increase temporary labor rates from $1 - $1.50/hour, according to Staffing Industry Analysts. Even with this increase, it is still likely to remain an attractive option for many companies to control labor and benefit costs.
Independent contractors and temporary staff on long-term assignments, such as highly skilled technical and professional workers, are another good option to reduce permanent headcount while maintaining productivity, but we caution employers to be diligent in following employment law governing their employment status. As most employers know, an independent contractor is only considered “independent” under the law if he has the freedom to work when and where he wants, using his own equipment and being paid like a vendor rather than an employee.
Failure to follow these rules is likely to result in a finding that the person is, effectively, an employee and, therefore, eligible for health insurance under the ACA’s employer mandate. Issuing a Form 1099 to the person at year-end is not sufficient to avoid this risk, or to avoid paying payroll taxes and/or fines for misclassifying employees.
We recommend that companies review their benefit plans in a holistic manner that considers their permanent staff, as well as temporary workers and consultants, to ensure they are setting up their organization for success across the workforce, leveraging all available options to maximize productivity and minimize cost. We also encourage companies to set up a documentation system to ensure they have all of the necessary documentation long term to demonstrate compliance with labor and tax laws, as well as the employer mandate, long into the future – even if the rules change again.