PrideStaff | Affordable Care Act

QUESTIONS ABOUT THE AFFORDABLE CARE ACT (ACA)?
WE HAVE ANSWERS.

The Affordable Care Act has created many questions for both small and large employers across the country.  To help answer those questions, PrideStaff has partnered with the country's leading experts on ACA.  From legal counsel helping shape the reform in Washington, D.C., to leading insurance providers building compliant programs for all sizes of employers, we have compiled this information to help you navigate the ACA reform.

The Affordable Care Act's Costs And Risks To Your Company

In July of 2014, PrideStaff surveyed 1,100 U.S. employers on their understanding of, and response to, the Affordable Care Act.

Read More »

Are You A Large Or Small Employer?

Still unsure about whether you classify as a large or small employer? This helpful resource explains how to calculate how many "full-time equivalent" employees you currently have.

Read More »

 

ACA FREQUENTLY ASKED QUESTIONS.

How do I calculate full-time employees?

The math used to determine large or small employer status can be accessed here.

Will two independent companies with unique tax ID numbers, but the same ownership, be counted independent of each other when determining full-time employee headcounts?

There is a "control group" test that applies to the ownership of these separate entities.  Please refer to: Chapter 7 - Controlled and Affiliated Service Groups from the IRS here. If you are unsure, you should seek a formal legal or tax opinion.

Does an employer have to extend coverage to an employee’s dependents (spouse/family)?

The employer is required by the ACA to extend coverage to the employee’s dependents but not to a spouse. The employer is not required to contribute to the cost of a spouse or dependent coverage when offered.

For an employer who currently does not offer coverage, will offers of coverage be required in 2015 or 2016?

It depends on the employer size. If the employer has 99 or fewer “full-time” employees (be sure you understand how to count hours for part-time employees) then the employer will not be assessed penalties until 2016.  In order to qualify for this delay, the employer will be required to certify that certain conditions apply.  If the employer has 100 or more "full-time" employees then the employer must offer coverage in 2015. The certification information can be accessed here.

Do all employer plans need to be calendar-year based by January 1st, 2016?

There is no requirement for fiscal plans to become calendar year plans.

Who determines “plan affordability?"

Affordability is based on the employees’ household income, which means their Modified Adjusted Gross Income (MAGI). Since it is difficult for an employer to know the household income of an employee, they are able to use one of the three affordability safe harbors. The safe harbors are: W-2 Wages; Rate-of-Pay, and Federal Poverty Limit.  More information can be found here.

Is it correct, that if a company offers health insurance to its employees, those employees would not be eligible for subsidies?

If the employee is eligible for an employer sponsored plan, that is affordable to him/her and meets minimum value, then the employee will not be eligible for a subsidy at the Exchange. Otherwise, an employee may qualify for a subsidy.
https://www.healthcare.gov/
http://www.irs.gov/uac/Individual-Shared-Responsibility-Provision

Is there a simple test or set of criteria to determine whether a plan is a "Cadillac" plan?

Yes, if the plan value exceeds $10,200 for an individual and $27,500 for family coverage, then there will be a 40% excise tax on the amount exceeding those limits. We caution, however, that these rules are complicated, and no regulations have yet been issued detailing how they work. Click here for more details.

Do volunteers who work 40 hours per week qualify for benefits?

The IRS definition for Bona fide volunteers working for a government agency or a tax-exempt organization are not treated as employees.

What are the rules for "seasonal" (not part-time) employees?

The definition of "seasonal employee" is one whose customary employment is 6 months or less in a position that is seasonal in nature. An intern or summer worker is not necessarily "seasonal" and may need to be offered coverage within 90 days if still employed.   

Do “seasonal” employees working under 120 days need to be counted when calculating full-time equivalent employees?

You do not need to count seasonal employees working less than 120 days when determining if you are a large employer subject to the employer mandate.

What if a HR Assistant is hired to support 100 additional seasonal employees? Would the HR Assistant be considered seasonal?

Possibly, provided that the assistant also works 6 months or less in support of other seasonal employees. 

What if an employee works 84 hours per week for almost 5 months, is under 120 days but over 1560 hours? How is this employee counted?

If an employee works 84 hours per week, then they are most likely a full-time employee and must be offered coverage after three full months of employment.  It would be unlikely that this individual could qualify as a “variable hour employee." Thus, he or she would not be tested under a measurement period of up to 12 months. 

If the Exchange is closed, what happens if someone loses their health care coverage?

Loss of coverage would be considered a qualifying life event that should allow an individual to enroll through the Exchange during a special enrollment period. However, COBRA elections can complicate the process. Please refer to the Employment Matters blog post, explaining the issue here. 

If new hires are offered health coverage options after 90 days of employment, are those employees penalized for waiting until end of 90-day period?

Individuals can generally have a three month delay before receiving an offer of coverage without triggering penalties. There are two sets of rules that must be reconciled. However, the first is the bar on waiting periods in excess of 90 days; the second is the rules governing offers of coverage under the pay-or-play rules, which generally require an offer of coverage after three full months.  Compliance with one does not ensure compliance with the other. Click here for more details.

Why are stand-alone reimbursement accounts no longer allowed? What if one is in place already?

In a notice issued in late 2013, and in subsequent guidance, the IRS has made clear that pre-tax premium reimbursement accounts (PRAs) are generally barred commencing in 2014. Going forward, PRAs may only be paid on an after-tax basis.

For the period they have already paid on a pre-tax basis, it may be possible to correct the amounts in the employee’s W-2 compensation so far, so that the amounts are subject to taxation retroactive to January 1st. (That is, it may be possible to withhold the appropriate taxes from one paycheck or spread it over several paychecks.) But any employer that has continued a pre-tax PRA into 2014 should consult legal or tax counsel on how to “unwind” the PRA. For a discussion of possible penalties, and how to handle them, please refer to the Employment Matters blog post explaining the issue here

Currently employees who do not elect into our company medical plan are provided a reimbursement of $100 per month. Could this be seen as a stand-alone reimbursement program like a HRA (Health Reimbursement Arrangement)?

See the previous question’s answer. This is a stand-one health reimbursement account that is no longer permitted. 

May an employer continue to reimburse an employee for health coverage obtained outside of the employer-sponsored plan?

Yes, but not on a tax free basis. Reimbursement must be imputed as income.Loss of coverage would be considered a qualifying event that should allow an individual to enroll through the exchange.

Could you please clarify the “Direct Sellers” classification?

Direct Selling is the sale of a consumer product or service, person-to-person, away from a fixed retail location. The direct sale of products or services is generally accomplished through independent sales representatives who are sometimes also referred to as consultants, distributors or other titles. (Home shopping parties, for example, are a widely recognized direct sales method.) In the vast majority of cases, these individuals are not employees of the direct seller. They are instead independent contractors who market and sell the products or services of a company in return for a commission on those sales.   

Individuals can have a 90-day gap in coverage and not pay penalties.

Can a company offer their employee insurance to their independent contractors?

While the law does not prevent it, the carrier may. It will be important to provide more information such as the nature of the group or qualifiers. For example, a Mary Kay sales person may become eligible for health benefits once they meet certain sales goals. You will need to communicate with your insurance carrier on this. You should also be aware that the tax treatment of health benefits provided to independent contractors is less favorable than that available to employees.

Who is the common law employer when a company uses a temporary staffing firm?

IRS will use a multi-factor test to determine who the common law employer is for purposes of 4980H penalties. You can access the criteria here. If there is any question as to who is the employer, we urge you to get a formal opinion from your attorney. 

Are staffing firms subject to tax on all temporary employees?

No. The ACA provides that employers are subject to play-or-pay taxes only with respect to their “full-time” employees. For this purpose, the ACA defines a full-time employee as one who works on average 30 or more hours per week with respect to any month.

The government recognized that offering health insurance coverage or determining employer tax obligations on a monthly basis would not be feasible for employers with employees who work on a part-time or intermittent basis and whose hours are variable or otherwise uncertain. To address those concerns, the law will allow employers to use a “look-back measurement period” of up to 12 consecutive months to determine an employee’s full-time status for purposes of benefits eligibility.

Employers can use the look-back method for both “ongoing” employees (those who already have worked a full measurement period) and for new “variable-hour” employees. Variable-hour employees are those whose work patterns, on their start date, are expected to be of limited and uncertain duration. The final employer rules list several factors employers must take into account in determining whether a worker is a new variable-hour employee subject to the look-back rules. General factors include, but are not limited to:

  • Whether the employee is replacing an employee who is full-time or variable-hour.
  • The extent to which the hours of service of employees in similar positions vary above and below 30 hours, and whether the work hours were communicated to the employee.

Additional factors apply in determining whether temporary staffing firm employees are variable-hour:

  • Whether other employees of the staffing firm in the same position retain the right to reject assignments; whether they typically have periods during which no assignments are offered; whether they typically are offered assignments for different periods of time, and whether the assignments offered typically do not extend beyond 13 weeks.

Assuming an employer chooses a 12-month look-back period, an employee who qualifies as ongoing or variable-hour will have to work at least 1,560 hours over 12 months to be considered full-time.

Based on the guidance issued to date, we expect that most temporary employees assigned by staffing firms will qualify as variable-hour and therefore will be ineligible to enroll in a staffing firm’s health insurance plan unless they work full-time during the applicable look-back period. However, employees who at the start are reasonably expected to work full-time for predictable, longer periods of time (e.g., information technology and professional employees) generally will be treated as non-variable hour, in which case they will be eligible for benefits at the time of hire.

In addition to excluding employees who have not achieved full-time status, staffing firms also can exclude for penalty purposes the following individuals, provided the staffing firm offers a plan that provides minimum essential coverage to at least 70% of its full-time employees (and their dependents):

  • Employees who opt out of the staffing firm’s plan for reasons other than plan unaffordability or failure to provide minimum value—e.g., they are covered by a spouse’s or parent’s plan.
  • Employees who elect to enroll in the employer’s plan even though it is “unaffordable” or does not provide minimum value.
  • Employees enrolled in a state Medicaid program.

(© 2014 American Staffing Association. All rights reserved. americanstaffing.net.)

Will clients have employer responsibilities for staffing firm employees under the ACA?

Generally, no. “Employer” under the ACA has the same meaning as under the Employee Retirement Income Security Act (Erisa). The U.S. Supreme Court has ruled that whether an entity is an employer under Erisa, is determined by the common law multifactor test.1

Staffing firms generally should be viewed as the common law employer because they recruit, screen, and hire the employees; pay employees’ wages and benefits; withhold and pay employment taxes; and have the right to terminate or reassign employees. They generally also retain the right to control and direct how the employees perform their work, although the law doesn’t require that they actually exercise such control. The few court rulings that have specifically examined the employer status of staffing firms under the common law test have upheld the employer status of staffing firms based on facts and circumstances that are typical of most staffing arrangements.2

If a client is determined to be the common law employer, the rules provide that an offer of coverage made by the staffing firm on behalf of the client under a plan maintained by the staffing firm may be treated as an offer of coverage made by the client for purposes of the client’s ACA obligation.

 

1 Nationwide Ins. v. Darden, 503 U.S. 318 (1992).

2 See, e.g., Burrey v. Pac. Gas & Elec. Co., 1999 U.S. Dist. Lexis 22619 (N.D. Cal. May 12, 1999) and Blue Lake Rancheria v. U.S., 653 F. 3d 1112 (Ninth Cir. 2011) upholding the common law employer status of temporary staffing and employee leasing firms.

 

(© 2014 American Staffing Association. All rights reserved. americanstaffing.net.)

What if the staffing arrangement causes a client’s headcount to fall below 100?

There are no bright-line answers to this question, but employer regulations suggest that the answer will depend on whether the primary purpose of the staffing arrangement is to avoid the ACA employer coverage or tax obligations.

Businesses have a right to decide whether and when to outsource portions of their workforce—or how many full-time employees they need—based on legitimate business and economic reasons: for example, meeting fluctuating demand for goods and services, staffing special projects, and managing high-turnover operations. Therefore, staffing services used by clients for such reasons should generally be ACA compliant even if the client’s headcount is incidentally affected. But if the primary purpose is to avoid the ACA employer coverage or tax obligations, the arrangement may come under scrutiny and the client held to be the responsible employer.

 

(© 2014 American Staffing Association. All rights reserved. americanstaffing.net.)

Can staffing firms help clients reduce costs by supplying part-time employees?

The ACA applies only to full-time employees, defined as those working, on average, at least 30 hours per week. Many businesses rely on part-time employees, and staffing firms can supply them if needed. But clients should be aware that this will not necessarily result in lower staffing costs. Staffing firms strive to maximize their temporary employees’ work hours by employing them full-time during any given workweek. So even if a client asks a staffing firm to supply an employee for part of a week, the employee generally will work the rest of the week for another staffing firm client; and to the extent the employee is enrolled in the staffing firm’s health insurance plan, it necessarily will affect the cost of service. 

Of course, it could be considered an abuse if an employee’s weekly hours are split between a staffing firm and its client, or with another staffing firm, and each firm claims that the employee did not work full-time. The government has expressed concern about such a result and future guidance is expected to address such cases.

(© 2014 American Staffing Association. All rights reserved. americanstaffing.net.)

Can temporary employees be terminated or refused reassignment to prevent them from reaching full-time status under the ACA?

Terminating or refusing to reassign temporary employees prior to the employee achieving full-time status would likely be viewed as abusive if the primary purpose is to avoid the ACA employer coverage or tax obligations; such action may also violate Erisa if the primary purpose is to deny benefits.

 

(© 2014 American Staffing Association. All rights reserved. americanstaffing.net.)