The post below is a guest blog from W. Hunter Walton, JD who serves as Principal, Health & Welfare Consultant for CAI’s employee benefits partner, HCW Employee Benefit Services.
Many employers use staffing agencies to provide workers for short-term projects and tasks and to supplement their full-time permanent workforce. This common practice has always been a convenient way to outsource labor and to avoid the complicated administrative processes of hiring temporary employees. However, with the new shared employer responsibility mandate that goes into effect on January 1, 2014 as a part of the Affordable Care Act, staffing agencies are beginning to adapt to a new set of rules and regulations.
Traditionally, employers who utilize staffing agencies for temporary employees pay a fee to the staffing agency and are paired with an applicant. The staffing agency then pays the applicant, the associated taxes, and in some instances will offer benefits. There has often been no question that while the applicant may work on projects for the company hiring them through the staffing agency, the staffing agency is the employer and is responsible for complying with the laws pertaining to employee/employer relationships.
With the introduction of the shared employer responsibility provision of the Affordable Care Act, employers with more than 50 full-time employees must offer health insurance to their employees. While determining who is responsible for offering coverage to employees hired through a staffing agency may seem straightforward, guidance from the IRS and the Department of Labor suggests that it may not be so simple.
In order to make this determination and establish who is responsible for providing health coverage or paying the associated penalties, the government may use the common law employee test traditionally used for determining Social Security liability. Using this test, employers may find that temporary employees whom they thought were the responsibility of a staffing agency may actually be their own legal employees.
The common law test is subjective and requires several factors to be taken into consideration. No one factor is controlling and all factors are intended to serve as guides to reaching a reasonable conclusion. The two primary factors are determining who controls what must be done by the employee and how it is done. Other factors include determining who trains the employee, the degree of integration within the hiring firm, the duration of the relationship, the manner that business expenses are paid, who furnishes tools and materials used on the job, the right to discharge, and the right to quit. Even if the employer does not give the employee orders on what to do, including, how, when, and where to do the job, he or she only needs the right to do so for the worker to be considered an employee.
All of these factors should be considered in their totality, and it is possible that they will vary from temporary employee to temporary employee.
Given the myriad of factors used to determine who an employee’s common law employer is, it is imperative that employers currently utilizing the services of a staffing agency clarify who will be responsible for providing coverage to workers working more than 30 hours per week. With the use of the common law employer rules, many companies may have more employees than they currently realize and this could affect how they determine their size for the pay or play penalty, as well as to which employees they offer coverage if they have more than 50 full-time employees.
Determining who is truly the common law employer in these situations will not only affect determination of who is responsible for providing coverage or paying the associated penalties, it will also determine who is required to receive certain new notices, who should be counted when paying new taxes and fees, and who should be eligible for COBRA.
To fully comply with the Affordable Care Act and avoid unnecessary penalties, employers need to make these determinations now and not wait until they go into effect in 2014. HCW anticipates that many staffing agencies will begin to include contract provisions for these kinds of determinations; however employers cannot rely solely on a third party to confirm their liability. Most employers will need to make these determinations independently and protect their liability by consulting outside counsel. By determining what employees are required to be offered health coverage now, before a penalty is imposed, there will be a much smoother transition once the penalties are in full force.