When it comes to minimizing the costs of the Affordable Care Act, managing employees’ hours and long-term tenure is an available method, especially when the employer does not sponsor a health insurance plan.
However, a recent American Staffing Association Issue Paper (membership required) asserts that capping the hours and tenure of employees would violate the ACA, ERISA, and the preferences of the IRS.
Yesterday, I addressed three myths stemming from that Issue Paper. Here, I discuss four more.
Myth #4: ERISA §510 Liability. In order to invoke the specter of ERISA, the Issue Paper confuses sponsored plan situations with no-plan situations. If a staffing firm sponsors a plan, capping hours could indeed lead to liability under an ERISA provision that prohibits negative employment actions intended to deprive employees of benefits.[1] However, if the staffing firm does not sponsor a plan for temporaries, this exposure is absolutely zero.
PREMIUM CONTENT: Affordable Care Act – Summary of Final Regulations
Myth #5: Internal Revenue Code §414(o). In a public forum other than the Issue Paper, one of the Issue Paper’s authors told a staffing audience that Internal Revenue Code §414(o)[2] would neutralize any attempts by staffing firms to avoid ACA insurance and penalty costs. Section 414(o) has no actual content. All it does is authorize the Secretary of the Treasury to develop unspecified future regulations to tighten the tax code’s aggregation rules. Developing such regulations takes time, usually years. This section does absolutely nothing now and may never do anything to affect ACA cost minimization strategies.
Myth #6: The Economic Substance Principle. The author referenced above told the same staffing audience that the “economic substance principle” would be used to neutralize ACA cost avoidance strategies using workforce structuring. He was referring to §7701(d) of the Internal Revenue Code, which blocks the intended effects of financial and property transactions driven solely by tax avoidance. This is a really far-fetched argument, since this law, its regulations, and the cases interpreting it have never applied this principle to decisions on employment, which are not “transactions” covered by that law.
Myth #7: Vaguely Perceived “Abuse.” In a more recent article, the other Issue Paper author stated that caps on hours would likely be considered “abusive,” but he did not say by whom they would be considered abusive or why that opinion would matter when the law and the regulations are being complied with. Fear of some vague, adversarial, and unfounded assertion is not a good reason to incur real, huge, and immediate business costs.
Conclusion
It is fully compliant with the ACA for staffing firms that do not offer health insurance to temporary employees to manage the hours and tenure of those employees to prevent them from attaining the full-time status that would otherwise increase the Affordable Car Act’s “A” penalty.
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