The ACA and Temporary Workers

American businesses use more than 3 million temporary workers per day. How will the Affordable Care Act affect the use of temporary and leased workers?

The Affordable Care Act (ACA) will require employers with 100 or more full-time equivalent employees to offer them “affordable” health insurance starting in 2015 or pay a penalty. Employers with 50 or more must comply starting in 2016. Many business experts expect this to boost temporary employment, as employers strive to keep their employee count below the compliance threshold.

How will the use of temporary and leased employees affect your benefit responsibilities?Grocery store employee, price checking an item

“Employer Mandate” Applies to Staffing Firm Employees…But

The employer mandate will also apply to staffing firms. Under regulations released in February 2014, employers cannot impose waiting periods longer than 90 days on individuals otherwise eligible for coverage. This means that any worker who works full-time for more than 90 days would typically be eligible for coverage.

However, lobbying from the staffing industry prompted regulators to create a safe harbor for variable-hour employees. IRS Notice 2012-58 defines a variable-hour employee as one the employer cannot determine is “reasonably expected to work on average at least 30 hours per week” based on the facts and circumstances at his/her start date. IRS regulations give employers a look-back period of three to 12 months to determine whether new variable-hour employees or seasonal employees are full-time employees, without being subject to the employer responsibility payment for this period.

If variable-hour employees meet the criteria for full-time status during the look-back period, the employer must treat them as full-time employees during the subsequent “stability period,” which must last at least as long as the look-back period. The employer must treat these variable-hour employees as full-time with respect to benefits, even if their hours drop below full-time during the stability period.

You Might Still Have Liability for Benefits for Temps

Temporary employees hired through an agency work under the supervision of the client company; however, the temporary agency provides pay and benefits. Leased employees are part of a staffing arrangement where a leasing firm “employs” company personnel, handling payroll, taxes, benefits and other HR functions. Some leasing firms supply companies with an entire staff of employees for extended time periods.

In almost all temporary or leasing situations, your company and the staffing agency or leasing firm are considered joint employers. While the agency or firm is the primary employer, both entities have some responsibility for providing employee benefits. Which provides what portion of benefits depends upon your relationship with the staffing agency and the benefits offered to your permanent employees.

To reduce your company’s responsibility for benefits for temporary and leased employees, employment law experts offer this advice:

  • Evaluate the staffing company’s credentials. Before signing up with a temporary agency or leasing firm, investigate to make sure it is reputable, financially stable, and that the staffing or leasing plans don’t violate IRS or other federal employment guidelines. If the agency fails to pay all payroll expenses, workers’ compensation and benefits for a temporary employee, your organization could become liable for these benefits as the joint employer.
  • Relinquish control. Wherever possible, defer control and responsibility of temporary employees to the staffing agency. Allow the agency to maintain control of employment actions such as recruiting, training, job assignments, firing, complaints, raises and payroll issues.
  • Differentiate workers. Set up clear differences between temporary and permanent staff. This means that temporary workers should ordinarily be excluded from using company facilities like gyms and stores. Even badges or other employee identification should be distinct from those of permanent staff.
  • Compare plans. Employers should know and understand exactly what benefits the temporary agency offers. Comparing the agency’s benefits to those offered by the client company helps employers assess risk in case an employee is misclassified. While federal law does not prohibit joint employers from excluding contingent staff from employee benefit plans, there are exceptions. If an employee is otherwise eligible, an employer can’t impose minimum age or length-of-service requirements to deny participation.
  • Evaluate after 1,000 hours. Temporary employees might become eligible for participation in your defined benefit retirement plan under the 1,000 hour rule. Title 1 of ERISA requires defined benefit pension plans to credit part-time workers who work 1,000 hours or more per year with a portion of the benefit in proportion to what they would have earned if they were employed full-time. However, your company might not have to cover the worker if the plan contains a proper exclusion provision or if the worker does not otherwise fit the definition of a common law employee (such as one hired for a specific project or work of a type not done by direct employees).
  • Ensure temps have leave benefits. Leased and temporary employees are eligible for Family and Medical Leave Act (FMLA) protection as long as they meet the other requirements for coverage. Under FMLA, joint employers must both count the temporary/leased employee in staffing levels to determine employee coverage and employer liability. As primary employer, the temporary agency/leasing firm is responsible for giving required notice to the employees, providing FMLA leave and maintaining health benefits.

USI Metro can answer your questions about complying with the Affordable Care Act, benefits for contingent workers, or other aspects of your benefits program. Contact us today.

Independent contractors are also part of the contingent work force. These self-employed workers contract with employers to perform specified tasks. Usually paid on a fee-for-service basis, they are free to provide services to other companies while they also work for you. Independent contractors do not generally qualify for traditional employee benefits, including workers’ compensation.

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