In a recent Staffing Stream post, Don Dewer of inSynch Staffing cited an ADP video in which the presenter asserted that staffing firms must charge clients a “cost differential” to reflect the cost of providing health coverage to its employees or the client must treat the employees as its own employees for ACA purposes. This, in our view, reflects a misunderstanding of both the ACA employer regulations and the common law employer test as it applies to staffing firms.
The cost differential referred to is based on a “safe harbor” provision in the ACA employer regulations allowing staffing firms to offer coverage on behalf of clients in cases where the staffing firm is not the common law employer. Because most staffing firms are common law employers based on historical practice and legal precedent, there is no practical or legal reason to include the safe harbor language unless there is significant doubt as to the staffing firm’s employer status. We recently published a comprehensive analysis that supports the common law status of most staffing firms and discusses the proper role of the safe harbor language. We elaborated on the overuse of the safe harbor in a recent Mintz Levin blog post.
Staffing firms generally are common law employers not only because they pay the employees’ wages and benefits and withhold and pay employment taxes, but also because they recruit, screen, and hire the employees; establish employment policies governing employees’ job performance and conduct; have the right to terminate or reassign employees; and retain the right to control employees’ conduct at the work site—although the law does not require that such right actually be exercised. The American Staffing Association has developed model contract language spelling out the staffing firm’s employer role. The ADP presenter recommends inclusion of such language as a best practice and we agree with that recommendation.
What we disagree with is the suggestion that, even where a staffing firm is performing the functions of a common law employer as described above, and despite inclusion of explicit contract language confirming its employer role, a client must include the employees as its own for ACA purposes if the safe harbor language is not included. Inclusion of the safe harbor may be useful as a contingency provision in cases where the staffing firm’s employer status is unclear or ambiguous. But failure to include the safe harbor language has no legal or practical consequence unless the client is actually held on audit to be the common law employer and the staffing firm has failed to offer ACA-compliant coverage or pay required penalties. Clients can protect against that circumstance simply by requiring the staffing firm to indemnify it against such liability.
Alden Bianchi contributed to this post.