Health Coverage for Contingent Workers by Staffing Firms | DCR Workforce Blog

Health Coverage for Contingent Workers by Staffing Firms

Even with the postponement of its implementation to 2015, the Affordable Care Act needs everyone associated with the contingent workforce industry to waste no time in trying to understand what it requires of them. Deciding who qualifies for coverage and who does not requires a clear understanding of how long the contingent worker would be associated with the staffing firm, exceeding the normal capabilities of forecasting of any staffing agency.

At this point in time, deciding the eligibility of contingent workers, in conformity with the Act, is fraught with a great number of uncertainties and consequences which has left many industry players utterly confused about whether they should play or pay.  The ACA differentiates between regular full-time employees and “variable hour” employees.  If a worker is deemed a full-time employee, healthcare benefits must be available within 90 days of employment.  For “variable hour” employees, a look-back period of up to 12 consecutive months is used to determine an employee’s full-time status, subjecting the worker to an initial, employee-specific waiting period prior to subscribing to the benefits program.

Here’s the rub:  staffing agencies cannot automatically apply a look-back period to all contingent workers.  Proper classification of variable hour employees is tied to the length of engagement, but the ACA does not specify what that length of engagement is!

Contingent or Not – How do we Decide?

The following IRS guidelines could be of some help in resolving the confusion:

  • Jobs which are historically/structurally intended to be full-time and long-term would entail coverage within 90 days. Many technical and professional staffing engagements are for 6+ months, and often involve engagement extensions.  Individuals assigned to these engagements are more likely to fall under the “full time” category.
  • Contingent workers whose probable tenure is unclear (but most likely less than six months), with probably erratic assignments can be made an offer of coverage only after they clear the 12-month look-back test of full-time service. Most commercial engagements (light industrial and admin/clerical workers) are engaged for short-term assignments, and these workers will typically be classified as “variable hour” employees.
  • New permanent hires on full-time schedules (of over 30 hours a week) cannot be denied coverage or made to wait for coverage beyond the 90 day window; even if the employment could end earlier.
  • Assignment of the right category will have to be determined on the start date.

A mistake in determining the above categorization, and waiting 13 months instead of providing coverage within 90 days, could result in a $2,000 penalty per employee, which could prove debilitating to any staffing firm. On the other hand, if the staffing firm decides to extend the coverage to more new hires to avoid being penalized later, the overall costs of the firm could increase, squeezing its already narrow margins further or taking away the cost effectiveness of contingent workers if the staffing company tries to recover the additional expense from buyers.

Mapping the Future of the Contingent Workforce Industry

How could this reshape the staffing industry? Many different scenarios may play out:

  • Staffing agencies understand that assignment profitability is directly proportional to length of engagement.  With longer-term assignments, agencies can recoup costs and enjoy higher margins in the later months.  For opportunities that offer the potential of a longer engagement, the possibility of being offered health coverage at the end of 12 months would improve workers’ stickiness and encourage more of them to agree to an engagement extension. Workers would also be more receptive to an immediate redeployment (with no break in employment) with the same agency.
  • Many companies impose tenure limits and tenure gap periods on contingent workers. Staffing agencies have traditionally attempted to dissuade clients from this practice, pointing out that tenure limits – which are nearly always less than one year – do not protect against co-employment claims.  Tenure limits may now be viewed by staffing agencies as protection against worker claims of benefits under ACA.
  • Staffing agencies must begin building new financial models to determine the break-even points between revenue generated by length of engagement and the cost of health benefits under ACA. We have already seen many companies, including staffing agencies, prepare for the impact of ACA by reducing the level of service provided to employees through their choice of benefits plans while increasing employee contributions to health insurance costs. As staffing agencies are required to provide coverage to a wider base of qualified employees, they may continue to seek low-cost, low value alternative plans that meet minimum ACA requirements.

The effective date for implementing the act was pushed to Jan 1, 2015.  However, the 12 month look-back period requires staffing firms to get their act together. They must begin to evaluate historical workforce assignments in 2014 to understand the potential impact on their firms.  And, they must prepare to meet the ACA statutes in a way that enables them to continue to provide great service to their clients while maintaining necessary profit levels.  The implementation of the Act has a staggered schedule and it is important for employers to be agile in using the window of time available to set the strategic direction and processes right, without any loss of time.

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.