Employers did not need another reason to complain about the burdens of the Affordable Care Act (“ACA”). Most of us know that the law includes onerous obligations on employers that have made human resources and benefits personnel’s jobs increasingly difficult. For example, you have to figure out if the law applies to your organization (how many full-time and FTE employees do you have?), to whom you have to offer coverage (full-time, part-time, variable hour, seasonal employees?), what coverage you have to offer (minimum essential coverage that is affordable and meets the minimum value test), how to tell if the coverage you are offering is affordable (something about 9.5% of the employee’s W-2 wages, right?), how to track employees’ hours, etc., etc., etc.!
Well, I am sorry to say that for those of you that use temporary or contract workers, you have another thing to worry about under the ACA. Specifically, you need to determine whether you have to offer those temporary or contract workers health insurance benefits. The ACA requires that an applicable large employer offer health insurance benefits to its full-time employees (those that work on average 30 or hours more a week). The ACA uses the well-known IRS control test to determine who is an “employer.” That is, it does not matter what the agreement between the temporary agency and your organization spells out. If your organization exercises sufficient control over the temp or contractor employee, it will be deemed the common-law employer of that employee. And if that is the case, under ACA, your organization will be obligated to offer health care coverage to full-time workers, regardless of whether you categorize them as “temps,” “temps-to-hire” or “independent contractors.”
That being said, however, the ACA provides a workable option that enables you to – in essence – take credit for an offer of health insurance benefits by the temporary or staffing agency. Specifically, if the temporary staffing agency offers coverage that passes muster under the ACA, you can take credit for that offer. This option is spelled out in the preamble to the ACA Final Regulations on the employer shared responsibility requirements. The provision reads:
… if certain conditions are met, an offer of coverage to an employee performing services for an employer that is a client of a professional employer organization or other staffing firm (in the typical case in which the professional employer organization or staffing firm is not the common law employer of the individual) (referred to in this section IX.B of the preamble as a ‘‘staffing firm’’) made by the staffing firm on behalf of the client employer under a plan established or maintained by the staffing firm, is treated as an offer of coverage made by the client employer for purposes of section 4980H. For this purpose, an offer of coverage is treated as made on behalf of a client employer only if 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 to the staffing firm for the same employee if the employee did not enroll in health coverage under the plan.
If you are inclined to take credit for the offer of coverage by the temporary staffing agency, you should make sure the agreement (including what the additional fee will be) is clearly spelled out in writing. In addition, while the regulations are silent on what the additional fee must be, it should be more than a token.
Now, if this seems like a headache for your organization to take on at this time, I remind you that the ACA requires applicable larger employers (defined as those with 100 or more employees in 2015; 50 or more employees in 2016) to offer coverage to “substantially all” of its full-time employees. “Substantially all” means 70% in 2015 and to 95% in 2016. Therefore, if your percentage of temporary employees falls within the less than 30% this year or 5% next year of full-time employees who are not being offered benefits, you may be fine in terms of ACA compliance. But obviously, you must carefully track the numbers of temporary employees you are using, as compared to the total workforce (including those temp agency/contractor employees) to ensure you stay within those percentages.