When it comes to healthcare reform, for many employers the magic number is 50.
Employers with 50 or more full-time workers are classified by the government as a “large employer” and will be required to provide healthcare coverage that meets government standards to employees. However, if you’re an employer near or over that threshold you were granted a reprieve by the U.S. Department of Treasury – complying with the requirement was delayed one year from Jan. 1, 2014 to Jan. 1, 2015.
Regardless of when the law will take effect, the looming regulations are shining the spotlight on independent contractors, and the role they play in businesses and organizations. Because independent contractors do not qualify as employees, some businesses are considering various steps to increase use of their services, or redefine current employee’s status to avoid the requirements of a large employer.
A Wall Street Journal article, A Health Scare for Small Businesses, provides a good overview of the challenges and concerns that are motivating some employers to consider increasing their use of independent contractors or taking other steps to ensure they comply with the requirements.
Yet businesses need to walk a fine line when it comes to how they define and classify employees. Experts and analysts have been weighing in with advice for businesses that could be affected by the new rules. For instance, a June 2013 article posted by the Associated General Contractors of America warned that employers should use “extreme caution” before attempting to manipulate its number of employees by reclassifying them as independent contractors.
“The penalties for improperly classifying workers could substantially outweigh the benefits of a tax credit or the penalties under the ACA,” the article states.
Meanwhile, in an article that provides an overview of upcoming changes, employment lawyer Nancy E. Joerg emphasizes that, “Simply slapping a label on a worker as an independent contractor is not sufficient proof of independent contractor status.”
Joerg recommends that employers take the time to gain a full understanding of what defines an independent contractor as opposed to a full or part time employee. Specifically, employers can look for guidance by reviewing the IRS definition of independent contractor as well as the 20-factor common law test that the IRS uses (also called the control and direction test) to determine independent contractor status.
Savvy employers should not view the delayed deadline as an opportunity to procrastinate, according to Entreprenuer.com. The extra year should provide proactive employers the opportunity to assess their staffing and determine how employees are classified heading into 2015.
In the Entreprenuer.com article, Liz Moughan, director of the retail and hospitality practice at a workforce management software company, suggests businesses take the additional year to examine what the optimal mix of full-time and part-time employees would be, and then manage to that number.
“Businesses cannot rest idly,” Moughan said, and should “take a more thoughtful and strategic approach to how they can handle the changes in the Affordable Care Act.”
That’s sound advice, because it is highly unlikely that the government will offer another extension. That means, beginning Jan. 1, 2015, if a 50-plus employer doesn’t offer coverage or its coverage doesn’t provide minimal value, it may find itself subject to monetary penalties.