Should staffing suppliers be required to provide their contingent workers with healthcare coverage that is compliant under the Affordable Care Act?
Some say the risk a staffing buyer could be found a “common law” employer and potentially exposed to penalties under the ACA is minute. But others are concerned the penalties are so great, even a small risk is not worth taking.
“It’s still somewhat new, but from a buyer’s perspective, we certainly want the staffing suppliers we deal with to comply with the ACA,” said Gary Campbell, CEO of Johnson Health Center in Virginia. “We are compliant, and our staffing firms are compliant as well.”
It isn’t worth the risk otherwise, especially considering concerns over joint employment, Campbell said. Potential penalties under the ACA could be calculated based on the organization’s total employment base.
No immunity. But even before the ACA, Campbell said health benefits was a consideration for JHC when looking for staffing suppliers. With staffing suppliers providing healthcare coverage, you tend to get contractors that may be more loyal to a firm. The ACA now brings added concerns.
“Unless you’ve got your head in the sand, no one’s immune from the ACA,” Campbell said. “Everybody’s going to pay for it one way or the other.”
Bryan Peña, VP of contingent workforce strategies and research at Staffing Industry Analysts, says he has spoken with staffing buyers who also cite the outsized consequences as a concern though the risk could be small.
Some staffing suppliers have reported in online forums that staffing buyers are requiring them to provide ACA-compliant healthcare coverage. And some suppliers are already getting coverage in place. A survey of staffing suppliers by Staffing Industry Analysts last year found 55% planned to offer major medical benefits to their workers — 22% planned to offer major medical insurance identical to that offered to internal staff and 33% planned to offer a less expensive variety.
“Barton Staffing Solutions engaged early last year to prepare for the ACA employer mandate while considering the compliance needs of both clients and employees,” said Andrew Stein, director at the Aurora, Ill.-based staffing firm. “We collaborated with clients to identify a solution and educated employees in order to minimize risk for all parties, including the staffing firm, client-host employer and employees.”
Stein also said “high-value clients, good employees and staffing firms easily sense another’s wriggling through a loophole. No firm can accurately predict which party(ies) IRS penalties and fines will be levied after final interpretation of co-employment. However, firms can balance the cost and risk across all parties.”
Concern for some staffing buyers centers on who is the common law employer and the subsequent penalties if they are found the common law employer and the contingent workers are not offered health coverage. However, others say it is unlikely staffing buyers would be found common law employers.
According to the American Staffing Association, temporary staffing firms have generally been held to be common law employers under historical precedent because they pay, recruit, screen and hire employees as well as have the right to terminate workers and control employee conduct at worksites — even though that right may not be exercised. The American Staffing Association has developed model contract language intended to help ensure staffing firm agreements properly reflect the staffing firm’s common law employer status.
However, in cases where an entity does not recruit the workers, as in PEO and similar arrangements, the IRS has historically taken the position that the entity is not the common law employer, although there is legal authority to the contrary, according to the American Staffing Association.
“Staffing firms that conduct their business under the traditional temporary staffing model should have little difficulty establishing their status as the common law employer — so it should not be a significant concern for clients,” said Ed Lenz, senior counsel at the American Staffing Association. “In our view, the risk of reclassification in such cases is quite remote.”
“Our sense is the common law employer test is going to be used primarily as a way to identify abusive arrangements,” Lenz said, that is when a company may be using a staffing firm to avoid its own obligations under the ACA.
In those few cases where there is a significant risk that the client may be viewed as the common law employer, the law allows staffing suppliers to insure workers on behalf of clients as long as the client pays more for a worker who enrolls in the staffing firm’s health plan than it would have paid had the worker not enrolled.
Lenz and attorney Alden Bianchi of the law firm Mintz Levin produced an historical analysis on the subject of common law employer status in the staffing industry for Bloomberg BNA.
Beware overbroad requirements. Requiring staffing firms provide all workers healthcare coverage is often beyond what the Affordable Care Act mandates because not every contingent worker will be eligible for coverage, according to attorney Janette Levey Frisch, founder of The EmpLAWyerologist Firm. Staffing firms are allowed to use a look-back period from the previous year to determine a worker’s average number of hours of service. There are also methods for determining a new worker’s eligibility. No employer, including a staffing firm, is obligated to offer coverage to an employee who is not eligible.
And the requirement is to offer — not provide — coverage, Levey Frisch said. Therefore, if the staffing company offers coverage to a worker and he or she refuses the offer, a requirement to provide all workers coverage would essentially impose on staffing companies penalties well in excess of those already imposed by the Affordable Care Act.
Buyers could instead require staffing firms to certify they are doing what they are supposed to under the ACA, Levey Frisch said.
Requiring a staffing firm to have coverage for all workers could be particularly hard on those providing lower-margin skill sets. For some staffing firms, such a requirement could be enough to put them out of business, Levey Frisch said. If a client has otherwise determined that engaging a staffing firm to help provide it an augmented workforce is a viable way to run its business, and it then imposes on the staffing firm a requirement that puts the agency out of business — where is the client now?
This type of requirement could end up leaving only the very large staffing firms in business — and they could have little enough competition that they may be able to set prices and conditions that are not workable for the clients, she said. Alternatively, to meet this type of requirement, the staffing agencies would likely have to raise their rates to cover the costs. Essentially the cost would be passed on to the client. It’s not clear anyone benefits.
Whichever path buyers choose to take, it doesn’t appear the ACA is going away. Last week, the US Supreme Court ruled for the government in a challenge to the law.
For more on the Affordable Care Act, see “U.S. Affordable Care Act Requirements – What Contingent Workforce Programs Should Know,” by Staffing Industry Analysts.