Determining who is an employee is fairly simple when there’s a two-party arrangement between the employer and employee. However, when workers are hired through staffing firms or other third-party arrangements, it becomes a bit more difficult to determine exactly whose employee they are.
This is important because the answer to that question determine whose responsibility it is to offer coverage.
The final regulations detail what’s required for outsourced employees, but there still seem to be a few flaws in the way it’s being understood and interpreted. Here’s the actual wording:
79 Fed. Reg. p. 8,566 (Feb. 12, 2014)):
“[I]f certain conditions are met, an offer of coverage to an employee performing services for an employer that is a client of a professional employer organization or other staffing firm (in the typical case in which the professional employer organization or staffing firm is not the common law employer of the individual) . . . made by the staffing firm on behalf of the client employer under a plan established or maintained by the staffing firm, is treated as an offer of coverage made by the client employer for purposes of section 4980H. For this purpose, an offer of coverage is treated as made on behalf of a client employer only if the fee the client employer would pay to the staffing firm for an employee enrolled in health coverage under the plan is higher than the fee the client employer would pay to the staffing firm for the same employee if the employee did not enroll in health coverage under the plan. (Emphasis added).
Treas. Reg. § 54.4980H-4(b)(2):
For an offer of coverage to an employee performing services for an employer that is a client of a staffing firm, in cases in which the staffing firm is not the common law employer of the individual and the staffing firm makes an offer of coverage to the employee on behalf of the client employer under a plan established or maintained by the staffing firm, the offer is treated as made by the client employer for purposes of section 4980H only if the fee the client employer would pay to the staffing firm for an employee enrolled in health coverage under the plan is higher than the fee the client employer would pay the staffing firm for the same employee if that employee did not enroll in health coverage under the plan. (Emphasis added).
Problems with the Rule
There are a number of concerns with the rule and the way it’s being applied. One is that it’s being overused, as employers who use third-party staffing firms are often complying with the rule by way of their contracts due to an overwhelming fear of getting it wrong. The important thing to understand is that control, not tenure, determines who is an employee.
Another concern is regarding the amount of the additional fee that’s required. This becomes a problem for staffing firms who wish to shift some of the cost burden onto their clients. There are arguments for using the total cost of compliance or perhaps a fixed amount per hour. However to date there’s no clear standard for determining what the fee should be.
There’s also no clear understanding of when and how the fee should be charged. While periodic line-by-line invoices would be ideal but other options, like charging a set amount each billing cycle or a certain percentage of the hourly rate, have also been proposed. But there’s no indication that the fee must be charged periodically. So, it seems even a back-charge at the end of the year would suffice.
Stay tuned for more information as ACA developments continue to roll out. You can also read more about this issue by clicking here.