Over recent months a recurring issue has been raised by staffing firms not subject to the employer responsibility rules under Affordable Care Act.
In order to protect themselves against a penalty for failing to offer coverage under an eligible employer-sponsored plan to any individual deemed to be their common law employee, increasing numbers of client companies are requiring staffing suppliers, even those that do not fall into the definition of an “applicable large employer,” to make an offer of minimum essential coverage to all assigned employees.
This fear of liability is probably misplaced, as in the majority of cases, based on tax and employee benefits laws, the staffing firm is considered to be the common law employer of its assigned workers, not the client. Even if the likelihood of liability is small, it is still a risk some CW programs are not prepared to take, particularly if they think the staffing firm can provide a solution.
Legal precedent of employer status aside, if your provider does offer coverage, you should not only be prepared to pay more for those covered temps, you should welcome it. Here’s why.
The final regulations provide client employers with what has been called a “safe harbor” where there is more than one employer:
“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.” [Emphasis added]
In other words, clients that insist on contractual obligations to offer coverage should be open to the concept of paying a higher or additional fee for the assigned workers.
Clients also need to keep in mind, however, that for staffing firms that are not required to offer coverage, it can be difficult, if not impossible, for them to find an insurer willing to provide coverage, so the higher fee is not even part of the negotiation.
In non-tax and benefits cases, the test usually applied is the “economic reality,” considering the extent to which the worker is economically dependent on the employer rather than the degree of control which the employer has the right to exercise. Staffing firms assume the responsibility for most aspects of the employment relationship, from hiring and firing to rewarding and disciplining the worker, and ultimately terminating the assignment and the relationship.
Until the IRS makes a determination, there can be no absolute certainty for either the client or the staffing firm as to who is considered the employer.