The post below is a guest blog from Jay Lowe who serves as Principal, Health & Welfare Consultant for CAI’s employee benefits partner Hill, Chesson & Woody.
Many companies use staffing firms to fill placement needs within their organizations. The placements can be for short-term coverage needs or longer term work assignments. Under the Employer Mandate portion of the Patient Protection and Affordable Care Act (PPACA), these temporary employees must be classified just as any other permanent employee based on their job description or role within the company. The classification determines whether or not this temporary employee should be offered health coverage. Improper classification and failure to offer health coverage to a full-time but temporary employee could result in significant tax penalties levied against the client employer.
When PPACA was initially enacted, the rules around staffing firms were not clearly defined. There was some speculation that these entities would not be subject to the Employer Mandate or penalties and that companies who use staffing agencies would not be required to offer their ”staffed” or “temporary” employees coverage. Earlier in 2014, however, the IRS and the Department of Labor issued clarification around this and deemed that the Common Law Employer is to be responsible for providing coverage to staffed employees and will receive the penalty if out of compliance with the Employer Mandate.
The Common Law Employer may or may not be the staffing agency and is to be determined using the IRS 20 factor test. This determination would be made regardless of any agreement or contract between the staffing agency and the client employer. Additionally, the issuing company of an employee’s Form W-2 is not determinative of who is responsible for offering coverage. In many cases, the Common Law Employer is the client employer who receives the temporary employees from the staffing firm. When the client employer is the Common Law Employer, the burden of offering coverage (and the risk of penalty) lies with the client employer.
The Employer Mandate final rules provide some relief to companies using staffing firms, by allowing a staffing firm to make an offer of coverage on behalf of the Common Law Employer. A compliant offer of coverage for staffed employees releases the Common Law Employer (i.e., the client employer) of the Employer Mandate obligations for those employees procured through the staffing agency. The rules around this are simple:
- First, the offer of coverage must be made by the staffing firm. The coverage will consist of a medical plan that meets or exceeds the 60% actuarial value limit set by law and be affordable to the employee (total annual premium cost to the employee of no more than 9.5% of their W-2 income).
- Second, the plan that is offered is a group health plan established or maintained by the staffing firm.
- Third, the fee paid to the staffing firm by the client employer is higher for those temporary staffers who enroll in the plan than it is for those temporary staffers who choose not to enroll. Basically, the staffing company is required to pass along a portion of the cost of insurance to their client employer.
What should you do now?
Employers who use temporary employees should ask their staffing firms questions about how they are complying with the PPACA regulations, as that could have a significant impact if penalties are triggered. Conversely, staffing firms must be prepared to answer the questions they will receive from their clients.
Questions that should be asked and answered are:
- How do you plan to comply with PPACA in 2015?
- Do you plan to offer MEC to full‐time employees?
- Will the MEC be of minimum value (i.e., 60% plan value)?
- Will you be charging a different fee for employees enrolled in the plan than for employees not enrolled in the plan?
- If yes, what will the differential be?
- Will you obtain and maintain waivers for those employees who waive coverage?
Ultimately, there is a vital necessity for any company that uses temporary employees to have an open channel of communication with their staffing firm. Employers must educate their staffing firms on types of employees they need with respect to their classification. Conversely, staffing firms must educate their employer clients on how they plan to manage the Employer Mandate and what to expect regarding pricing and coverage on the employees they place. Staffing firms and their employer clients must work together to develop a plan to reduce and/or eliminate the exposure to penalties.