Does your organization use temporary workers or independent contractors on a regular basis?
Many manufacturers and other businesses turn to staffing agencies to supply temporary workers to deal with fluctuations in production cycles. You may be using independent contractors and consultants for special projects. Due to provisions in the Affordable Care Act (ACA), you may be required to offer these workers health insurance benefits. If you fail to do so, you could be subject to costly excise taxes under the employer shared responsibility sections of the Act.
In 2015, the health insurance requirements apply to employers with 100 or more full-time or full-time equivalent employees. “Affordable minimum value health coverage” must be offered to 70% of full-time employees and their dependents. The full provisions go into effect in 2016. The requirements will then apply to employers with at least 50 full-time or full-time equivalent employees. These employers are “applicable large employers” under the ACA and need to offer affordable health coverage to 95% of their full-time employees and dependents (those who work an average of at least 30 hours per week).
If employers fail to offer affordable health coverage to their full-time employees and at least one full-time employee receives a premium tax credit to purchase insurance on an exchange, they are subject to one of two excise taxes. Circumstances determine which excise tax applies to the employer for a particular month. One tax applies if coverage is not offered to the prescribed percentage of full-time employees. The other applies if the coverage offered does not meet minimum value and affordability requirements. The penalties can be quite significant.
The IRS assesses the penalties after information reporting for the calendar year is processed. Information reports covering 2015, Forms 1094-C and 1095-C, are required and are due by February 1, 2016. These forms are required for employers with 50 or more full-time employees, without any transition relief. Even if you are not an “applicable large employer”, you may be required to file the information reports if you offer coverage through self-insurance. The forms report health coverage information on a monthly basis, including full-time status, health coverage offered, employee share of premiums, and self-insured coverage. The information gathering for these forms is a major effort so you should focus on these as soon as possible.
Worker Classification and Employee Counts:
A big part of working with these new provisions is proper classification of your employees. Independent contractors, if properly considered common law employees, are included in the totals. Temporary agency workers that are under the control of the employer are also counted. The inclusion of temps or contractors may cause some employers to be treated as large employers under the ACA who do not expect to be treated as such. If the workers are considered full-time employees, the employer must offer them affordable coverage.
The full-time and full-time equivalent employee threshold is determined on a calendar year basis, by looking at the preceding tax year. For 2015, the employer would determine the totals for 2014. Employers need to count employees at all related companies to determine if they are considered a large employer. If they meet or exceed the 50 full-time employee threshold as a group, then each company must separately determine if they comply with the 70% or 95% thresholds for offering affordable health coverage.
An employer that uses a staffing agency to obtain temporary workers should find out if the staffing agency offers coverage to full-time employees, and if the agency charges a higher fee for those employees that enroll. If so, the employer will be treated as offering the coverage to these workers. Staffing agreements should be documented in writing.
Employers must make sure they identify all common law employees and do the calculations to determine if they are considered a large employer under the ACA. The rules are complex. A large amount of information needs to be gathered and analyzed to see how they apply to a particular company’s situation.
We urge you to work with your partners — staffing agencies, payroll service providers and tax advisors — to consider how these rules affect your organization. If you have any questions on how these rules may apply to your company, please reach out to a tax advisor at MKS&H.
Article contributed by Lee McIntyre, MKS&H Tax Manager
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.
Like what you read? Sign-up for our C-Suite Spotlight Program.