Temporary Staffing and ACA Compliance

Staffing firms, you may need a check-up. Even if you don’t serve clients in the health care industry, you still have to comply with health care laws. One way or another, you have to take care of your people. When clients come to you for temporary staffing, they expect you to do just that. It’s about compliance.

Regarding federal laws such as the Affordable Care Act (ACA), temporary staffing firms need to understand how the law intersects with regulations enforced by the Internal Revenue Service (IRS).

For your own company’s health, taking ACA compliance requirements seriously can not only reduce your legal exposure, but also improve your reputation as a trusted staffing partner.

Who’s the Employer—the Staffing Firm or the Client?

Staffing firms, and some seasonal employers, face a conundrum that many companies do not—the question about who is responsible for providing health care coverage for independent contractors. Unfortunately for temporary staffing firms, the answer to this particular ACA compliance question is not in their hiring contracts. It’s in the law.

Many government agencies have relevant employment regulations, including unemployment departments and labor commissions. But the IRS is the gorilla in the fight over classification of independent contractor vs. employee. The agency has a control test that determines which party is the employer. The answer has significant implications.

How Many Full Time Employees Do You Have?

The ACA weighs in, too, when it defines “full time” as 30 hours per week, 130 hours per month, or 1,560 hours in a year. It sounds straightforward enough, but isn’t always so clear in the temporary staffing industry.

Temps come and go on a repeating basis, working different numbers of hours and durations. Some employees may work full time, but only for part of the year.

Rebecca Cenni, CEO of Atrium Staffing, says the nature of their business adds a level of complexity because of the cyclical nature of employees being hired, separated, and then rehired again. This makes accurate reporting challenging, she explains

For this reason, the IRS offers look-back provisions as an alternative to a strict monthly calculation for staffing and other types of companies that employ intermittent labor.

Under the look-back provisions, companies can look back at the last 12 months of timesheets and pick a measurement period between three and 12 months to determine employees’ average weekly hours. If an employee worked an average of 30 hours per week during that time, that individual is considered full-time.

David Lewis, CEO of Operations Inc, an HR outsourcing and consulting firm, says there’s more to successfully navigating compliance than the math of calculating FTEs and determining affordability. Beyond the math, there are several practical questions to consider with regard to ACA compliance in the temporary staffing industry.

Will You Need to Increase Your Billable Rates?

Inevitably, the additional cost and burden must be absorbed somewhere, whether by passing it on to clients and/or streamlining operations to cut costs. Staffing firms may need to increase their billable rate to account for the added expense of health care benefits. This brings the challenge of communicating the news of potentially higher costs.

It’s important to set expectations and communicate with your clients, Lewis says, explaining that higher prices may become a deterrent to the clients who use your staffing agency. However, ACA compliance can also be a strong selling point if it means that your firm is less likely to get the client embroiled in litigation.

Will Employees Sign up for Your Plan?

Newer staffing agencies that have never offered benefits before may find that fewer employees enroll than they might expect. Even if it’s offered, Lewis points out, the overwhelming majority won’t take the benefit. Even if it’s considered affordable under IRS regulations for employers, he says, it’s not necessarily affordable to workers.

This cascades into another potential concern: pricing. If a significant number of employees choose not to enroll in your plan, your insurance carrier’s group plan pricing may change for the worse. For instance, if the insurer priced your plan for a group of 65 people, and fewer than 20 enroll, pricing is likely to suffer.

There’s no IRS penalty for employers in this scenario, provided your plan is considered affordable. It’s important to note that individuals who opt for no coverage at all will be accountable under the individual shared responsibility provisions.

Does Your Technology Facilitate ACA Compliance?

If your technology doesn’t support ACA compliance, it may be time to invest in software to track and manage assignments and billing that incorporates these fundamental calculations. Look for one that will cover the following:

The number of average and total accrued hours each worker has worked over a given period of time (this determines who is counted as an FTE).
Average pay rates (which are used to determine whether your plan is affordable).
An appropriate look-back period.

Knowing how to accurately count, classify, and track the eligibility of your employees, including seasonal and intermittent workers, are critical elements when determining your temporary staffing firm’s responsibilities and liabilities under IRS regulations and the ACA.