Are you an automotive supplier that employs workers through a staffing agency? If so, these workers can pose special risks for employers. However, properly structuring your contracts with the agency can make a significant difference in whether your company must pay penalties under the Affordable Care Act’s employer responsibility or play or pay provisions.
In 2015, large employers with 100 or more full-time equivalent employees must offer affordable health-plan coverage to at least 70 percent of full-time employees. In 2016, this number increases to 95 percent and applies to all employers with 50 or more full-time equivalent employees. Yet, which workers count depends on whether they are considered your common law employees.
If you use a worker from a staffing firm for anything other than a short-term, temporary assignment, the IRS may very well view that worker as your common law employee. If your company is considered the common law employer, you must count that worker when determining if your organization is subject to the play or pay requirement and if it owes any penalties.
The consequences of mischaracterizing workers from staffing firms can result in sizeable penalties for multiple years. For example, if starting in 2015 you do not include workers from staffing firms in your counts but the IRS in 2018 audits you and concludes that such workers are your common law employees, the IRS will recharacterize these workers not only for 2018 but also for past years. Since the penalties are based on the total number of full-time employees, the penalties for past years may be substantial.
However, the final regulations offer some safe harbor solutions for minimizing this risk. Where a staffing firm provides health plan coverage through a multiple employer welfare arrangement (MEWA), the staffing firm’s offer of health coverage will be deemed to be an offer of coverage on your company’s behalf. If your staffing firm does not use a MEWA, but does offer health plan coverage to the worker, the staffing firm will be deemed to be offering coverage on your behalf provided the fee the staffing firm charges your company is higher for an employee enrolled in the staffing firm’s health plan than it is for the employee not enrolled in the plan.
Because of the uncertainty involved in determining who the common law employer is, a conservative approach is to structure your company’s contract with its staffing firm to incorporate one of these safe harbor solutions. If the contract is structured correctly, you will be deemed to be offering coverage through the staffing agency – even if the worker is your common law employee.
If you need assistance with the play or pay regulations, structuring contracts with your staffing firms or with other Affordable Care Act compliance issues, please contact us or any other member of the Warner Employee Benefits/Executive Compensation Practice Group.