Like it or not, it looks like the Patient Protection and Affordable Care Act (PPACA), better known as “Obamacare,” is here to stay. And with the dreaded employer mandate looming in 2014, employers are struggling to understand the healthcare reform law and figure out how to respond. But what does it mean for staffing firms?
Well, there’s good news and there is bad news. First the bad: Staffing firm with 50 or more full-time W-2 employees will be caught by the employer mandate and will have to provide coverage for its employees or face penalties.
If they do provide coverage, they will face increased costs and ugly administrative headaches. Take for example the look-back period, which was instituted to help companies (particularly staffing firms) that have employees working variable hours determine if those employees must be covered. They are allowed to use a look-back period ranging from three to 12 months. If the employee averages 130 hours during the look-back period, they must be offered coverage during a subsequent “stability period” that must be as long as the look-back period and can’t be shorter than six months. If it sounds complicated, that’s because it is. Firms who do not have a dedicated benefits person on staff may have to get one.
Your clients are facing the same challenges and are trying to find ways around the employer mandate. And they have to act now. Even though the employer mandate doesn’t go into effect until 2014, it will be based on a company’s 2013 payroll. So employers are already instituting hiring freezes, laying employees off, or cutting their hours below 30 hours per week. In fact, a Mercer study cited in a recent USAToday article stated that half of the companies surveyed that are not currently offering health insurance would make changes to their full-time headcount to avoid complying with the PPACA.
The problem with that is it stifles productivity, profitability and growth. Predictions from reliable sources, including the Wall Street Journal and CNBC, indicate that more savvy companies will instead utilize contractors. Because contractors are W-2 employees of a staffing firm or back-office, the company is not responsible for providing coverage. The staffing firm or back-office must provide the coverage.
The indicator that more companies will use more W-2 contractors is the “good news” for staffing firms. But we need to address the possibility that your clients may try to classify workers as 1099s (independent contractors) instead of W-2 employees to avoid the employer mandate. That is a risky proposition. The IRS said it will be vigilant against companies that misclassify workers as independent contractors to get around the employer mandate. The IRS looks at a number of factors, including employer’s level of control over a worker, the duration of the relationship, and the payment structure, to determine whether a worker is truly an IC. So unless your client is sure their workers can pass the IRS’ test, they are better off utilizing a contractor who is a W-2 employee of your firm or a back-office.
In order to come out with a net win against Obamacare, you need to make sure your contractors don’t push you over the 50 W-2 employee mark. There are two ways to do that. The first and most obvious way is to simply limit the amount of contractors you take on, but that means turning down business, which means turning away money. Or you could take a cue from your clients and outsource the employment of your contractors. You can utilize a contract staffing back-office, which will put the contractors on their payroll and handle all of the employment responsibilities, including PPACA-compliance.
Obamacare is one of the ugliest employment laws companies have ever had to face. But if you play it right, the healthcare reform could end up being a windfall rather than a downfall for your firm.