How Does the Affordable Care Act Apply to Staffing Agencies and their Contract Workers? | DCR Workforce Blog

How Does the Affordable Care Act Apply to Staffing Agencies and their Contract Workers?

Affordable Care ActThe Patient Protection and Affordable Care Act), commonly known as the Affordable Care Act (ACA), makes it imperative for nearly all employers to offer health coverage to their workers as a valued benefit. As many companies have historically offered healthcare benefits to their permanent employees, ACA will perhaps have greatest impact on the contingent workforce industry. However, this complex piece of legislation is least clear when specifying how staffing agencies that employ workers to be placed on temporary assignments with “staffing buyers” should determine whether an employee qualifies under the ACA. Over the past two years, DCR’s blogs have chronicled the numerous amendments made to the ACA in an attempt to address this confusion. With the January 1, 2015 deadline behind us, we will attempt to summarize what must be done by staffing agencies and their staffing buyers to ensure compliance.

The ACA has many employers struggling with confusion with issues like “joint employment” and “co-employment”. Abundant caution is necessary, as a mistake here could have far-reaching repercussions and carry a double jeopardy – for ACA non-compliance as well as liability for misclassification.

Compliance with the ACA

To avoid possible pitfalls, staffing buyers should review their existing contracts with staffing providers to ensure that any possibility of exposure is eliminated. Responsibility for ACA compliance needs to be clearly assigned to the staffing supplier, serving as Employer of Record, for providing required coverage to workers. . The number of workers who become eligible for health coverage depends solely on the individual staffing agency and its usage of workers.

The number of eligible workers is not expected be very high, mainly because:

  • By its very nature, temporary work does not have many workers who can meet the required 1560 hours of employment in a calendar year to achieve full-time status and become eligible for benefits.
  • Many contingent workers are placed on assignments by different agencies and do not clock all the hours through one specific agency.
  • Most temporary assignments, particularly for general clerical/administrative and light industrial workers, average less than three months. This is not a long enough period to qualify for benefits under ACA.   Technical and professional workers are more likely to be placed on longer assignments.

Staffing suppliers can determine the most appropriate course of action to comply with the ACA’s mandate:

  • Companies can elect to pay penalties rather than providing health insurance coverage. This may make sense if the penalties are smaller than the costs of “play”. In that assessment, staffing agencies should factor in the administrative costs of monitoring hours worked by the employees and fulfilling the documentation requirements of the Act.
  • Arrange for an affordable healthcare coverage for all eligible temporary and contract workers. The staffing agency can offer minimum essential coverage, which is less costly than insurance that workers can personally obtain to meet the individual mandate.

What should Companies using agency-supplied workers do?

A staffing client should verify supplier compliance with ACA by answering the following questions:

  • Is the supplier exempt?
  • If not, will they pay or play?
  • If play, validate that the supplier’s plans are compliant and affordable as per the ACA requirements.

– Does the contract between staffing services buyer and staffing agency supplier articulate an understanding of the tenets of the law and clarify the coverage that will be offered to the workers?

– Can every staffing provider demonstrate that it has started to maintain a record of their full time employee transactions and coverage status beginning Jan 2015? Is each supplier prepared to submit the reports in Jan 2016?

– Has the supplier used the recorded hour information to figure out the eligibility for benefits as per the ACA’s mandate?

Address co-employment issues: A worker employed by a staffing company may qualify as a ‘common law employee’ depending on the level of supervision and direction provided by the buyer of staffing services on a daily basis. A similar liability may arise from having workers on multi-year assignments with the same client, while being on the rolls of a staffing company. If considered a common law employer, the client company would be a co-employer along with the staffing agency, having equal responsibility for all aspects of the worker’s compensation.

Put some safeguards in place, like:

  • A contract with suppliers, specifying that the workers solely work for the supplier.
  • Supplier makes worker agree in writing that the supplier is their employer of record.
  • Supplier exclusively manages all worker issues regarding compensation, performance issues, time off, or any other HR-related issues that are the responsibility of the employer.

Avoid Misclassification: When the ACA’s penalties become applicable, staffing agencies and their clients need to be sure that they have not made any mistakes in the classification of their workers. If guilty of misclassification, an one or both parties could be held liable for two separate counts of non-compliance – misclassification and non-compliance with the ACA. Both of these carry the threat of heavy penalties.

Validate the contingent worker:

  • Worker on-boarding should include documentation confirming the healthcare plan offered and selected by the contingent worker, as well as validation of the affordability of the plan.
  • Documentation must show that the look-back period and tenure of the worker is factored into the validations.
  • The supplier must re-evaluate worker eligibility if the assignment is extended or if the individual is selected for a re-assignment.

Documentation: Maintain records of every assessment process and decision, with supporting information, in case of an audit.

Who pays the incremental costs associated with ACA? Almost all staffing agencies which come under the purview of the ACA will find their direct costs increasing, either because they provided the required insurance coverage or because they paid the penalties for not providing any coverage. Will these costs inevitably be passed on to their clients?   Let us look at the various aspects of this issue in our next post.

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.