Countdown to ACA Compliance – Part III
The PACE Staffing Network has been preparing for the employer mandates of the ACA for well over two years. As members of the American Staffing Association (ASA), we provided input into several areas of proposed regulation, and attended countless hours of ACA related training. With the ACA’s employer mandates ready to launch January 1 2015, we wanted to share information on the specifics of how the ACA impacts your use of temporary/contract employees.
For ideas on how to better manage your needs for staff in light of new ACA mandates, contact a member of our Partnership Development team by contacting firstname.lastname@example.org or calling 425-637-3312.
In what ways has the ACA already impacted your temporary and contract workers?
The Individual Mandate has been in effect since 2014, requiring all temporary and contract workers to purchase ACA qualified insurance for themselves and their dependent children.
While we do not know what percentage of temporary/contract employees complied with these mandates in 2014, we suspect that number will increase in 2015 as penalties for non-compliance increase.
What changes go into play in 2015?
The Shared Responsibility component of the ACA, known as the Employer Mandate, goes into effect on January 1, 2015. This provision requires that all staffing companies employing 100 or more employees offer affordable and ACA qualified insurance to 70% of its eligible employees or pay significant fines and penalties.
The taxes/fines/penalties for not offering insurance are $2K/year ($167/month) per eligible full time employee—excluding the first 80; if the insurance offered does not meet ACA requirements or isn’t affordable, the fine/tax penalty is $250/month (up to $3K annually) for any employee going to the exchange for insurance and receiving a subsidy.
This mandate will impact most but not all staffing companies in 2015.
Are most staffing agencies already offering insurance?
The short answer is YES. PACE along with most staffing agencies has been offering some form of health insurance for well over a decade. Unfortunately these health insurance products do not meet ACA requirements, so new products for our industry had to be developed over the last year.
What requirements must be met in order for a temporary or contract employee to become eligible for ACA benefits on January 1st, 2015?
What must a staffing company contribute to the employee’s insurance costs in order to ensure “affordability?”
Staffing firms must contribute to the employees’ premium so that no employee is required to pay more than 9.5% of their base pay for their own personal coverage. For example, if an employee earning $10/hr. is offered an ACA compliant insurance plan that costs $400/month, the employee cannot be required to pay more than $123.50/month for their own coverage, requiring their staffing firm employer to pay $284.80.
How will newly assigned temporary and contract employees become eligible for coverage in 2015?
Starting in October, 2014, PACE will categorize all new hires as one of the following:
- Full-time – working 30 or more hours per week and projected to work at least 1560 hours in the coming 12 months,
- Part-time – working less than 30 hours a week, or
- Variable hour – employees whose status as either full- or part-time can’t be determined at point of hire.
- Seasonal – employees working 6 months or less at specific times throughout a calendar year.
While you might assume that all the employees we hire are either Variable Hour or Seasonal, there are very specific rules staffing companies must follow to put an employee into those categories. What’s at stake is that for employees categorized as Variable Hour, they are allowed to work for their employer for a defined “measurement period” (typically 12 months) without the benefit offer requirement. The IRS is not going to give this classification away easily.
How will most staffing companies decide to become compliant—will they pay or play?
To be ACA compliant, a staffing agency can either offer benefits or pay the $2000 per employee “did not offer” penalty. They can also offer a qualified benefit but not participate in its costs, running the risk of incurring the $3000 per subsidized employee penalty for not making their plan “affordable.”
Each approach to ACA compliance has offsetting costs and risks, requiring each staffing agency to choose a strategy that meets their customer’s needs for cost containment and their positioning in the marketplace.
The American Staffing Association commissioned a study by Towers Watson (2014) which provides insight into the choices likely to surface over the next 60 days. According to the TW study, 54% of staffing companies will be offering some level of insurance to its eligible temporary and contract workers. The remaining 46% are either planning to pay penalties or are too small to be covered during the transition year.
A popular compliance strategy used by many staffing agencies, including PACE, will be to offer two insurance options:
- A plan that meets both the “minimum value” (MVP) and the “minimum essential coverage” (MEC) definitions—with a 60% actuarial value covering core services. This plan will meet all the requirements of the employer mandate.
- A plan that meets only the “minimum essential coverage” (MEC) definition – A less costly plan that meets only individual mandate requirements.
This strategy provides a low cost way for our employees to become compliant with the individual mandate (avoiding their own fines and penalties), while protecting PACE from penalties stemming from employees taking subsidies because our plans don’t meet ACA requirements or are unaffordable.
Do you need to know if and how a company providing temporary or contract staff to your organization is ACA compliant?
Theoretically no. Provided you have the right contracts and agreements in place you will have no responsibility for your staffing vendor’s decisions regarding how they will get and stay compliant with ACA mandates.
Thinking more pragmatically, the expertise your staffing vendor brings to the table to not only ensure their own compliance with the ACA but to help you with yours, can be invaluable. First of all, a vendor who hasn’t prepared to become compliant can easily find themselves facing fines and penalties of a size that can end their business. Secondly, like most overly ambitious legal undertakings, the ACA contains opportunities for smart employers to use the provisions in the ACA to create new and more competitive ways of doing business. If staffing agency does not understand the ACA and its nuances, they likely won’t be able to offer fresh ideas on ways to lower your ACA related costs!
What will be the” added costs” for staffing agencies to become compliant with the ACA in 2015?
There are two categories of costs associated with ACA compliance:
- The increased costs of ACA related administration which will be considerable—starting with changes in point of hire administration, monthly reporting, annual reporting to both employee and the IRS, etc.
- The increase in direct costs associated with either offering the required insurance coverage or paying the penalties associated with not offering.
The direct cost increases will be agency specific, depending on several factors:
- How many “full-time” employees they have in their workforce relative to their total workforce?
- What percent of their eligible full-time employees will take the insurance once offered?
- The eligible employees rate of pay to arrive at the costs the agencies will incur to make their plan “affordable.”
- The costs of the insurance products they are offering.
Based on the costs we are currently projecting, PACE is anticipating a 3-5% increase in our direct costs with another 15% increase in our current administrative costs.
For staffing companies who elect to “pay,” are they subject to taxes/penalties on all their temporary employees?
No. The application of taxes and penalties for “not offering insurance” only applies to full-time employees (minus 80 in 2015).
Excluded from penalties for unaffordable insurance are employees who either reject an offer of coverage, elect coverage that isn’t affordable or delivering minimum value, or who are enrolled in state Medicaid programs.
What ACA related costs are still unknown/unclear?
Historically, the staffing industry has faced serious challenges finding a health insurance product that will serve their high turnover, low participation workforces. Six months ago there were no insurance products available to the staffing industry that would meet ACA actuarial standards. We now have insurance products, but it is not clear if these products will be attractive enough to our temporary and contract workers to incent their participation.
We’ll all know much more in six months than we know now about what percent of the people being offered insurance will chose to take it.
How will the individual staffing company deal with their cost increases?
There are as many different pricing philosophies and strategies as there are staffing companies—with the key factors being geography, local business and government taxes, employee type, market positioning, and service offerings. While the pricing structures of staffing companies providing long term professional staff typically have room for premium level healthcare benefits, for staffing companies working in more competitive markets, there is little room to absorb any increased in direct costs.
Some staffing companies will offer only the low cost MEC plans, taking the chance that the employees electing their insurance will not go out to the exchange and seek subsidies for better plans. We consider this strategy risky.
The ASA study by Towers Watson study revealed that 91% of the staffing firms polled are planning on passing their ACA costs (penalties or insurance costs) back to their clients in the form of across the board increases in bill rates. Most (38%) are planning 2-5% increases. 9% are looking to increases of 16% or more. 19% are still not yet sure how much they will increase bill rates.
How will the price increase be handled?
How will the increased costs of temporary and contract workers compare with the increased costs associated with the ACA for other types of employees?
Since the passage of the ACA, actuarial firms have been predicting increases in overall employee costs to be in the area of 5-8%. If this projection plays out, the per hour increase in costs for a temporary or contract employee may end up being much less than the increase in costs associated with the same employee, hired directly.
For example, an employee earning $15/hr. hired directly may cost an additional $3.25-3.75/hr. in healthcare benefit costs in 2015 compared to 2014. The same employee provided by a third party staffing agency, might cost $.45-.70 more per hour than they did in 2014.
For a more detailed discussion of ACA related “staffing math” and to compare the relative costs of employees hired directly with employees placed through a third party employer, contact our Partnership Development Team at 425-637-3312.
What other cost increases will employers experience in 2015?
When it comes to managing staffing providers, are there other elements of the ACA that employers should be paying attention to?
Yes. It may be time to review your staffing contract or agreements. The ACA has its own common law provisions, reinforcing the notion that it is the common law employer who is responsible to offer and pay for ACA mandated benefits.
In most temporary or contract staffing arrangements, there is clear legal precedence for the staffing company to be the common law employer, accountable for ACA compliance. That said, we recommend that employers consider adjusting agency contracts to clearly spell out each party’s respective roles in managing ACA mandates. PACE is happy to provide language recommendations upon request.
For employers purchasing payroll services from their staffing provider, the law is less straight forward and the need for contractual adjustments more important. Again, we recommend that the role of your third party payroll service provider be spelled out clearly and contractually in any ongoing payroll services agreement. We recommend that specific indemnifications related to the ACA liability should become standard clauses of all payroll service agreements and contracts.
NOTE: A nuance of the ACA regs specifically requires that if there is a chance or a reason for a payroll agent to not be considered the common law employer, the costs of providing insurance to an ACA benefit eligible employee should be passed back to that client as an increase in rate for the particular employee.
Between now and early January, PACE will be speaking with all clients to ensure the proper ACA compliant contracts are in place.
Do we need to be concerned about “abuse” clauses?
The IRS has been very clear that it will be looking closely at staffing firms and their clients to ensure that ACA benefit requirements are not purposefully skirted. For example, an employer who turns their entire 50 person workforce over to a staffing firm, so as to avoid falling into the “large employer” category, would be highly suspect. An employer who employees 48 people and regularly uses a staffing company to provide 5-10 employees for its peak busy periods, on the other hand, is likely not suspect, even though their use of temporary staff keeps them below the 50 employee benchmark. The difference? Their temporary staffing strategy was designed to address a business need—not to avoid offering benefits.
Splitting employees between a staffing company and their client or between two staffing companies so that no one “employer” reaches the 50 employee benchmark has been specifically prohibited.
While PACE will continue to be strong advocates for all of the business reasons to use more flexible staffing strategies, we will only recommend changes that are based on business need, not ACA avoidance.
Is there future ACA stuff that we should be thinking about for 2016 and beyond?
- Discrimination Issues. Current thinking is that all the ACA specific regulations related to discrimination will come out in 2015 and be implemented in 2016. The ACA is clear that any plan or employer contribution that provides a differential benefit in favor of highly compensated employees will be specifically disallowed. This means that once discrimination regulations have been written and put into play, employers will no longer be able to provide special plans or higher levels of contribution to their higher paid employees—short of making them available via post-tax dollars.
- Special tax on Cadillac Plans. In 2018, employers will be taxed on Cadillac benefit that cost more than $10,200 ($850)/month per individual. The tax on Cadillac plans is 40%—making these plans prohibitive for most employers. Employers with Cadillac plans will likely look for alternative approaches.
We hope you have benefited from reading this primer on the ACA and how it will impact your use of temporary and contract workers after January 1, 2015. For more personalized consultation, please contact our email@example.com or by calling 425-637-3312 to arrange an appointment with one of our ACA Specialists.
This article was prepared by Jeanne Knutzen, CSC, the President and Founder of the PACE Staffing Network. PACE remains committed to full compliance with the ACA and offers a variety of staffing products and services designed to ensure that our clients have options for containing the costs associated with ACA compliance. For a confidential discussion of how these services might be applied to your workforce, particularly your temporary and contract employees, contact a member of our PSN partnership team at firstname.lastname@example.org or 425.6376.3312.