One of the hottest topics in the staffing world this year has been the impending effects of the Affordable Care Act (ACA) on big business. Earlier this year, I was asked to advise some of my senior leaders on the impact of the ACA on our non-employees after swirling rumors of rate increases, penalty fees for misclassification, etc.
I collected information from various webinars and conducted my own research, then presented to our leadership team and made my recommendations. I broke it down into two categories:1.) The impact of the ACA 2.) How we are looking to Beeline for help
The impact of the ACAResponsibility: The Affordable Care Act is confusing enough, but it is really hard on the Contingent Staffing world and non-employee arrangements. There is an increased risk related to worker misclassification; if a worker is not properly classified as a contingent worker—whether it is a temporary worker, outsourced worker, or someone providing services through a statement of work—there is a possibility that their engagement could be construed as employment. If their engagement is determined to be an employment relationship, Southwest Airlines would be subject to compliance with the act and associated penalties. Many co-employment mitigation strategies discuss misclassification and can be used to assess this situation. Most of us have heard from the Supplier community that they are going to have to raise the rates by $5.00-$10.00 per hour. Before you agree to anything, there are three really big questions that you need to ask your suppliers:
1. Are they even required to cover the person?
They are only required to cover full-time employees (FTE) which means they have to work 1560 (39 weeks @40 hours per week) in order to qualify. Let’s think about this one:
- The contractor could work less than 30 hours a week and thus be below the hour threshold.
- The contractor could have a break in service which would relieve the Supplier. That break could be a result of the contractor taking time off, working for another supplier, finding a permanent job.
- The point here is that there is no way to determine on the front end of an assignment the contractor will meet the FTE requirements. Suppliers should be using the look-back rule to determine if their contractors are even considered a FTE at the end of the year. Remember this is based on the person, not the assignment. Just because the assignment is supposed last 18 months, there is nothing to guarantee that the same contractor will fulfill that entire assignment.
Did the Contractor opt out of the supplier’s plan b/c they are covered elsewhere? According to the Department of Labor, about 50% of temporary workers are covered under spouse or parent plans.
2. If they are asking to increase their bill rate, how did they come up with the amount?
Many Suppliers already provide a healthcare option for their contractors especially in the Professional or Managed service space. However, you see it a lot on the staff-augmentation side. In many cases this cost is already factored into their margin and rate which means you shouldn’t see any increase.
If the supplier wants to increase their rates to cover their new costs, you need to know how they came up with the amount.
- The max penalty for an employer per employee (EE) is $2,000 or $3,000 if they don’t have or select coverage once they qualify as a FTE at 1560 hours. That is $1.28-$1.92 an hour based on that figure. That hourly amount is based on 39 weeks verses 52 weeks which would lower that hourly amount. The majority of these situations will be at the $2,000.
- In some scenarios that I have seen, smart suppliers will figure out a way to distribute the penalty over their entire group—the impact could be as low as $.10 to $.18 per hour.
- Bottom line, you should be challenging your suppliers that want to raise their rates. This is a good time to evaluate whether they are the right partner for you.
3. How many hours is the Contractor working on an assignment for you?
So this is the last big question, if the contractor meets the requirements to be considered a FTE of the supplier and there is an additional cost to them, how much should be passed along to you? Let’s keep this simple, how much of contractor’s time has been spent on an assignment for you. Figure that out and then work out a formula to estimate the cost.
My strategy on this is to require any supplier wanting to increase their rates to prove at the end of the year:
- The contractor was an FTE for them.
- The supplier was required to include them.
- The cost and number of hours worked for us.
- They can then submit a fee at the end of the year for that cost.
A huge fear I have with the ACA is that some are predicting the IRS will change their definition of what constitutes an “Employee” for a company, changing it to focus on where the individual actually performs the majority of their work. For example, a temporary worker that is on assignments at company for over 1,560 hours in a year would be considered an employee of that company, for ACA purposes. The IRS might not necessarily make the company add them to their benefits plan, but they could be expected to pay penalty fees in order to cover them.