If nothing else changes in the next few months, the much anticipated employer mandate provision of the healthcare reform law known as the Affordable Care Act (ACA or Obamacare) will start rolling out in January 2015. While this may be bad news for some, Obamacare’s impact on recruiters could be very positive.
In anticipation of the employer mandate, some employers are putting the brakes on hiring and cutting employee hours to reduce or eliminate their costs under the law. Less hiring means fewer direct hire job orders, which would be a downfall for direct hire recruiters. But if you can also provide contract staffing, Obamacare could be a huge windfall for you. Contract staffing can help solve some of the challenges that healthcare reform presents to your clients. Before we get into that, here are the basics you need to know.
Healthcare Reform Cliff Notes
(If you already have a good understanding of the basics of the ACA, feel free to skip ahead to the next section.)
The ACA was passed to make healthcare more affordable and accessible to Americans. While it is up for debate whether that will be the ultimate outcome, Obamacare is here and employers need to prepare for it. This year is critical because the way companies structure their businesses this year could determine whether they have to comply with the employer mandate.
So what is the employer mandate? That is the provision requiring employers with 50 or more full-time or “full-time equivalent” employees to provide health coverage to its full-time employees. How and when this applies varies based the mandate’s “final” rules that were release February 12, 2014:
- Companies with 50-99 employees can delay compliance until January 2016 if they can certify on an official form that they didn’t reduce their workforce just so they could qualify for the delay.
- Those with 100 or more employees must provide healthcare insurance to 70% of their workforce in 2015. In 2016, they will have to cover 95% of their employees as originally written in the proposed rules.
If employers don’t provide coverage when required, they could face a $2,000 penalty per employee if even one employee uses a premium tax credit to obtain healthcare insurance through The Marketplace, otherwise known as The Exchanges. NOTE: Those with 100 or more employees who are subject to the employer mandate in 2015 can exclude the the first 80 employees when calculating this penalty. Only 30 employees will be excluded from the calculation starting in 2016, as the proposed regulations had required.
Even if an employer does offer coverage, they could face a penalty if that coverage does not provide “minimum value” or is not “affordable.” This penalty is $3,000 for each employee who uses premium tax credits to purchase coverage through The Marketplace or a state exchange program.
The costs for offering coverage that meets the requirements could be even more expensive, especially for employers that don’t currently offer health insurance. Just obtaining an insurance plan, which must pay at least 60% of the expected claims costs, will be very costly. Then there are the costs associated with simply understand and implement Obamacare. Employers may have to pay benefits experts, accountants, and lawyers to help them navigate the complex regulations. And of course, time is money, and administering the plan will be very time-consuming. Due to the ACA’s “individual mandate” requiring most Americans to have coverage, there could be a greater demand on employer-sponsored healthcare as well, requiring more time to onboard and off-board employees who must be enrolled and terminated from insurance. Employers will also need to address COBRA for each employee at termination.
In addition, employers who use a “look-back period” will face complex calculations and tracking. The look-back period was instituted to help companies with employees who work variable hours determine if those employees must be covered. They are allowed to use a look-back period ranging from three to 12 months. If the employee averages 130 hours per month (or 30 hours per week) during the look-back period, they must be offered coverage during a subsequent “stability period” that must be as long as the look-back period and can’t be shorter than six months.
How Employers Are Preparing
It’s no wonder employers are searching for ways to reduce or eliminate their costs under the ACA. The most obvious way to avoid it is to stay below the 50- employee threshold. They can do this by cutting hours, instituting hiring freezes, and conducting layoffs. But those methods can stifle growth, productivity, and profitability, not to mention how it could impact the company’s reputation.
Companies thinking about converting W-2 employees to 1099 independent contractors (ICs) should think twice, too. According to the Wall Street Journal, the IRS has already vowed to be vigilant against employers who incorrectly classify workers as ICs to get around the 50-employee threshold. Simply labeling a worker as an IC doesn’t make them one. The IRS looks at employer’s level of control over a worker, the duration of the relationship, and the payment structure to determine whether or not a worker is truly an IC. In addition to the traditional fines,penalties, and back wages employers face for misclassification, employers could also have to pay fines for failing to offer insurance to the misclassified workers under the employer mandate. So using ICs will not be a viable solution for most employers.
The Windfall, Part 1—More Job Orders
This is where you can turn the downfall of Obamacare into a windfall for yourself. You can help clients legally stay below the 50-employee threshold without reducing their productivity through contract staffing. Companies can use contractors to complete projects, meet goals, or respond to business surges without having to worry about the employer mandate because the contractors are employees of the recruitment back office solutions provider. Therefore, the back-office must provide the healthcare insurance, taking on the cost and administrative burden.
If a company has more than 50 employees, they may not be able to avoid Obamacare, but you may be to help them reduce their costs. For example, companies in manufacturing and IT often have projects running 12 to 18 months. Rather than taking on the cost and burden of providing those workers with benefits, companies can outsource that responsibility by staffing the project with contractors. While they may have to comply with the law, the number of direct hires they have to cover, and therefore their costs, will be reduced.
The Windfall, Part 2—Attracting Star Candidates
Obamacare could make you more popular with candidates, as well. As mentioned above, most Americans must have health insurance under the ACA, and that insurance must meet the regulated minimum value standard. Many catastrophic plans some independent contractors carry don’t comply. Therefore, independent contractors will have to do one of three things: 1.) Find an individual plan that complies; 2.) Go to state or federal exchange programs; or 3.) Become a W-2 employee of a company that offers the required coverage and contributes to the monthly premium cost. Recruiters who can place them as contractors who are W-2 employees of a back-office that provides ACA-compliant healthcare could attract star candidates!
Back-Office Support
Before you can help your clients, though, you need to align yourself with a quality contract staffing back-office that will become the legal W-2 employer for the contractors you place. Otherwise, you would be the employer and could be on the hook ACA compliance. The back-office should be ACA-compliant and provide health coverage to your contractors.
Will Obamacare be a downfall or a windfall for your firm? By providing contractors employed through a quality contract staffing back-office, you have the opportunity to turn it into a windfall. The choice is yours!
This article is for informational purposes only and should not be construed as legal advice.
