W-2 Employer of Record Services and the ACA Dilemma

The Affordable Care Act (ACA) has not been easy on employers. Thanks to delayed provisions and tiered requirements, we are only beginning to feel certain aspects of the ACA now. For those with 50 or more employees that are considered Applicable Large Employers (the IRS calls them “ALEs”), it sometimes feels like the list of requirements gets longer every day.Unfortunately, some of these requirements have put staffing firms and W-2 Employer of Record services between a rock and a hard place. Many have had to adjust service pricing, minimum pay rate requirements, and healthcare options to comply with the new rules. Why is that?

ALE Requirements: The “Rock”

Well, let’s take a look at a few of the key ACA requirements for ALE members. They must:

• Offer health insurance as an option to all full-time employees (defined by the ACA as working 30 or more hours per week) or pay in penalties.
• Provide Minimum Essential Coverage (MEC) that meets a minimum value threshold.
• Provide coverage that is “affordable” to employees.

This last factor is one of the most complex parts of the ALE requirements, as there are multiple ways it can be calculated. The affordability requirement is met “if the employee’s required contribution to the plan does not exceed 9.56% of the employee’s household income for the year” (SHRM).An issue that employers run into is that they are generally not privy to household income. With this in mind, the IRS provides employers multiple methods to determine affordability. One of these methods is to calculate the employee’s monthly required contribution for single healthcare coverage.

Minimum Pay Rates: The “Hard Place”

These requirements have forced staffing firms and W-2 Employer of Record services that are ALEs to make a tough choice. They must either take the penalties for not offering affordable MEC to all full-time employees, or if they are fortunate enough to have access to group coverage, they must implement a minimum pay rate to make sure coverage meets the affordability requirement.As a W-2 Employer of Record service that primarily employs contractors in the upper-level professional and healthcare sectors, FoxHire has always offered our W-2 contractors a comprehensive benefits package that includes medical coverage. However, due to the ACA requirements, we now have a $16 per hour minimum pay rate. Going by the 9.56% threshold, this pay rate allows our base medical plan to be “affordable” for all full-time employees and ensures we remain ACA compliant.

ACA Reporting: The Final Steps of Compliance

It’s becoming clear that the ACA is an extra burden on all employers—and the hoops to jump through are getting higher.For instance, this is the first year that ALEs subject to section 4980H of the Internal Revenue Code (“Code”) have to file form 1094C and distribute forms 1095C to all of their employees. Check back next week in the FoxHire Blog to find out how this impacts staffing firms and recruitment back-office services.