Monday, March 10, 2014

Carefully Structuring Contracts with Staffing Agencies is Key to Complying with Complex Obamacare Regulations

This is an excerpt from Norbert Kugele and April Goff at Warner Norcross & Judd LLP.:
If your company uses temporary workers through a staffing agency, how you structure your agreement with the agency can make a significant difference in whether your company has to pay any penalties under the Affordable Care Act’s employer responsibility or “play or pay” provisions. 
When the play or pay regulations become enforceable in 2015, one of the complex questions many employers have to work through is: Who is responsible for providing coverage to workers obtained through a staffing agency? ... [T]hese workers pose special risks for employers because it is not clear who the IRS will treat as the common law employer. ... 
... [I]f you use a worker from a staffing firm for anything other than a short-term, temporary assignment, the IRS may very well view that worker as your common law employee. If your company is the common law employer, you must count that worker when determining if your organization is subject to the play or pay requirement and if it owes any penalties.
The consequences of mischaracterizing workers from staffing firms can result in sizeable penalties for multiple years. For example, if starting in 2015 you do not include workers from staffing firms in your counts but the IRS in 2018 audits you and concludes that such workers are your common law employees, the IRS will re-characterize these workers not only for 2018 but also for past years. Even if the IRS re-characterizes a relatively small number of workers each year, this could change prior year calculations of whether your organization has been offering coverage to at least the minimum threshold of full-time employees. ...