From the Hotline: Staffing Agencies and the ACA Definition of Seasonal Employees

Question: Is there any special guidance for temporary staffing agencies regarding the employer mandate under the Affordable Care Act and definitions of seasonal employees?

Answer: The Affordable Care Act (federal health care reform) includes provisions for “employer shared responsibility” often referred to the employer mandate of “play or pay”. Briefly, beginning in 2014, a large employer (50 or more full-time-equivalent employees) must offer all full-time (30 hours/week) workers at least one group health option that is affordable and provides minimum value. Affordable means the employee’s contribution for single coverage does not exceed 9.5% of wages; minimum value means the plan’s benefits are 60% or more of total allowable costs.

“Full-time employee” generally means an employee that works on average 30 hours/week. IRS regulations will govern methods for employers to define “employee and methods to count average work hours, including look-back measurement periods.

IRS has not yet issued final regulations, although proposed regulations are available on many aspects of the employer play-or-pay rules. IRS recently released a set of proposed regulations offering preliminary guidance regarding “staffing agencies”. However, this material is preliminary; IRS is requesting public comments and will hold hearings this spring to gather input. Prior to 2014, IRS is expected to update the guidance to resolve numerous grey areas.

Based on the preliminary guidance, IRS will apply the common-law standard to determine which entity (staffing agency or client-employer) is the employer of a particular worker. Under this standard, “an employment relationship exists when the person for whom the services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished but also as to the details and means by which that result is accomplished.” The IRS generally uses a 20-point test to determine who the common law employer is. Employers that use staffing agencies or leasing companies – which are different concepts – will need to work with their legal counsel to determine their status under the Act’s play-or-pay rules.

“Seasonal employees” traditionally has referred to certain workers in the agricultural and retail industries. For purposes of the Act’s play-or-pay rules, the IRS proposed regulations indicate that employers in other industries also may consider certain workers as seasonal. Seasonal workers (working less than four months (cumulative) in any 12-month period) may be excluded in determining whether the employer is a “large employer”. If the employer is a large employer, seasonal workers as considered variable-hour workers, which means health coverage generally must be offered if they average 30 hours/week over the look-back measurement period.

For more information, please review the  Treas. Prop. Reg. (published in Federal Register 1/2/2013) available at: http://www.gpo.gov/fdsys/pkg/FR-2013-01-02/pdf/2012-31269.pdf.