How Will the ACA Impact Your Temporary and Contract Workers?
The first thing we want you to know is how prepared the staffing industry is for the changes required by the Affordable Care Act (ACA). Our national trade association, the American Staffing Association (ASA), provided hours of expert testimony to the administrators writing the regulations, plus conducted hundreds of ACA training programs for ASA members. Never before in the history of our industry has so much energy been spent getting us ready for change.
Because of the scope of information we want to cover, we’re using a Q and A format—making it easy for readers to find the information they need, skimming over the information they don’t. We hope this works for you!
In what ways has the ACA already impacted your temporary and contract workers?
The Individual Mandate has been in effect since 2014, requiring all temporary and contract workers to purchase ACA qualified insurance for themselves and their dependent children. We do not know how many of the temporary/contract employees complied with these mandates in 2014, but we suspect that number will increase in 2015 as the size of penalties for non-compliance increases.
What changes go into effect in 2015?
The Shared Responsibility component of the ACA, known as the Employer Mandate, goes into effect on January 1st, 2015. This provision requires that all staffing companies, employing 100 or more employees, offer affordable and ACA qualified insurance to 70% of its eligible employees or pay significant fines and penalties. This mandate will impact CSS and most staffing companies in 2015.
What requirements must be met in order for a temporary or contract employee to become eligible for ACA benefits on January 1st, 2015?
Any temporary or contract worker of a “large” staffing agency, who has been on assignment through their staffing agency for at least 1,560 hours during 2014 will become eligible for coverage as of January 1st, 2015.
How will newly assigned temporary and contract employees become eligible for coverage in 2015?
Starting in January, the ACA requires all employers to categorize all new hires as one of the following:
– Fulltime (projected to work 1,560 hours in the coming 12 months),
– Part-time (working less than 1,560 hours), or
– Variable Hour—a special category set aside for employees whose status as either full or part-time can’t be determined at the point of hire or placement on as assignment.
While you might assume that all hires made by staffing agencies would be Variable Hour employees, there are very specific rules staffing companies must follow in order to justify that status. Most have to do with the intended length of an assignment and the probability of the employee reaching the 1,560 hour threshold for fulltime status.
What’s at stake in the classification is that for employees categorized as Variable Hour, they are allowed to work for their employer for a defined “measurement period” (typically 12 months) before the healthcare benefit must be offered—a significant cost savings for most staffing companies and their clients.
What percentage of the temporary and contract workforce will be eligible for benefits on or after January 1st, 2015?
According to data we are collecting on our own workforce, plus data being supplied by the ASA, we are estimating that only 10-15% of our temporary and contract employees will become eligible for ACA coverage as of January 1st, 2015. We also anticipate this ratio will hold constant throughout all of 2015. Why so few? The nature of temporary and contract staffing is such that very few employees work for any one staffing agency for the 1,560 hours or more per year required in order to achieve fulltime status. Many of our employees use our services as a source of income between more traditional employment arrangements; others go from agency to agency in order to keep working.
Will employers need to change the way they request or use their temporary or contract workers to get them categorized as Variable Hour?
No. Your needs for staff and the length of time you use a temporary or contract worker on assignment should be based on your business needs.
A change you might expect, however, is to be asked questions about the business reasons for your request. Particularly if you are using temporary staffing services to replace a departing employee, you will be asked to disclose if that employee worked full or part-time—one of several factors your staffing agency must consider when assessing an employee’s employment status.
In reality, most of our employer clients use temporary employees for weeks, not months. For the most part, the days of “temps” working for companies indefinitely went away with the 2007 recession. The exceptions, of course, are the professional employees who work as contractors on long term, sometimes multi-year projects. Because these employees work a full 40-hours per week with the intention of being on assignment for multiple months, 6 or more, their agency must categorize them as fulltime and offer benefits accordingly.
How will most staffing companies decide to become compliant – will they pay or play?
To be ACA compliant, a staffing agency can either offer benefits or pay the “did not offer” penalty. They can also offer a qualified benefit, but not participate in its costs. Each option has both costs and risks, but represents different ways for a staffing agency to become compliant.
While each staffing agency will select a strategy that meets their customer’s needs for cost containment and their positioning in the marketplace, the American Staffing Association commissioned a 2014 study by Towers Watson, which provides insight into what might lie ahead for staffing agency customers. According to the TW study, 54% of staffing companies will be offering affordable ACA level plans to its eligible temporary and contract workers. The remaining 46% are either planning to pay penalties or are too small to be covered during the transition year.
A popular compliance strategy used by many staffing agencies, including CSS, will be to offer two insurance options:
– A plan that meets both the “minimum value” and the “minimum essential coverage” definitions of the ACA—a fully ACA compliant plan that will meet all of the employer mandate requirements. Often times referred to as Major Medical coverage.
– A plan that meets only the “minimum essential coverage” definition—which is a considerably less costly plan that is fully compliant with the ACA’s individual mandate.
This strategy provides temporary and contract employees with a low cost way of meeting their individual mandate, while minimizing the risk of offering plans that either don’t meet ACA requirements or are unaffordable.
Do you need to know if and how a company providing temporary or contract staff to your organization is ACA compliant?
Theoretically, no. Assuming you already have the right contracts and agreements in place you will have no responsibility for your staffing vendor’s decisions regarding how they will get and stay compliant with ACA mandates.
Thinking more pragmatically, however, the expertise your vendor partner brings to the table, not only to ensure their own compliance with the ACA but to help you with yours, can be invaluable. First of all, a vendor who is not offering affordable benefits or preparing to pay the “shared responsibility” penalties can easily find themselves facing fines and penalties that can end their business. Secondly, like most overly ambitious legal undertakings, it has become clear that the ACA contains opportunities for smart employers to use ACA requirements as a way to create competitive advantage. If your staffing agency has not taken the time to understand the ACA and its nuances, they cannot be counted on to provide you with the ideas you will need to stay competitive!
Are most staffing agencies already offering insurance?
The short answer is YES. Most staffing agencies have been offering their contingent workforces some form of health insurance for well over a decade. The longer and more ACA relevant answer to this question, however, is NO. The benefits the industry has offered are often called mini-med or indemnity plans and do not meet ACA actuarial or healthcare coverage requirements.
What will be the” added costs” for staffing agencies to become compliant with the ACA in 2015?
There are two categories of costs associated with the ACA that employers everywhere are facing:
- The increased costs of ACA related administration which will be considerable—starting with changes in point of hire administration, monthly reporting, annual reporting to both employee and the IRS, etc.
- The increase in direct costs associated with either providing the required insurance coverage or paying the penalties associated with not offering.
The direct cost increases will be agency specific, depending on several factors:
– How many long term employees will they have in their workforce as a ratio of their total workforce?
– What percent of those employees eligible for insurance will take the insurance once offered?
– The eligible employees rate of pay so as to calculate the employer’s contribution to ensure affordability.
– The costs of insurance they are being offered.
Based on the costs we are currently projecting, we are anticipating a 3-5% increase in our direct costs.
How will the individual staffing company deal with ACA related cost increases?
There are as many different pricing philosophies and strategies as there are staffing companies—with the key factors being geography, local business and government costs, employee type, market positioning, and service offerings. In general terms, staffing companies providing long term professional staff, typically have pricing structures already in place with room for premium level healthcare benefits. Commercial level staffing companies, on the other hand, who have been working in highly competitive, oftentimes commoditized markets, have little room for any increases in direct costs.
The ASA study by Towers Watson study shows that 91% of the staffing firms polled are planning on passing their ACA costs (penalties or insurance costs) back to their clients in the form of across the board increases in bill rates. Thirty-eight percent are planning 3-5% increases, but another nine percent are thinking more in terms of 16% or more. Additionally, nineteen percent are still not yet sure how much they will increase bill rates.
Will price increases be assigned across the board or only be applied to employers using employees eligible for benefits?
In order to keep cost increases low, most of the new pricing programs we have viewed are being designed to impact all clients equally—smoothing out the costs of providing insurance to eligible employees by spreading those costs across an entire workforce of eligible and ineligible employees.
The Towers Watson study indicates that employers can expect their price increase to come in a number of forms. Some will simply do an across the board increase in bill rate, while others will see increases in mark ups—some will be adding a line on each invoice for ACA Costs.
How will the increased costs of temporary and contract workers compare with other staffing solutions?
Since the passage of the ACA, actuarial firms have been predicting overall cost increases to be in the area of 5-8% per employee. If this projection plays out, the per-hour increase in costs for a temporary or contract employee will be less than half of the increase in costs associated with the same employee, hired directly.
Compare, for example, the costs of an employee hired directly—with an employee hired via a temp-to-hire staffing model, assuming that the first 3 months of employment are for a staffing company, not their ultimate employer. For an employee earning $15/hr. and hired directly, the costs of providing ACA compliant insurance coverage might be an additional $3.25-3.75/hr. Compare those costs to the costs of an employee provided by a third party employer using a temp-to-hire staffing model, which will be an additional $.40-.60 per hour.
What other cost increases will employers experience in 2015?
We anticipate that cost increases will touch just about every part of our customers’ businesses in 2015. The increases in administrative costs alone could be staggering, given the amount of info that needs to be tracked in order to stay administratively compliant.
While opportunities to save money are not the norm, your staffing agency does in fact provide one way to reduce operational costs. For all temporary and contract workers, the costs of ACA administration and reporting is paid by your staffing agency, not you.
What costs are still unknown or unclear?
Six months ago, there were no insurance products available to staffing companies that would meet the needs of their high turnover, low participation workforces, while still meeting ACA actuarial standards. Today, most staffing firms are comfortable that they will have insurance products to offer, but these products are both new and untested. It is not yet known what these insurances will cost or if they will be attractive enough to our employees at a level needed to invite their participation.
When it comes to managing staffing providers, are there other elements of the ACA that employers should be paying attention to?
Yes. It may be time to review your staffing contract or agreements. One of the lesser talked about provisions of the ACA are it’s common law provisions, which are common place for most agency/client relationships and will not be problematic.
For employers purchasing payroll services from their staffing agency, the law is less straight forward and contractual adjustments may be necessary. We recommend that the role of your third party payroll service provider be spelled out clearly and contractually in any ongoing payroll services agreement. Specific indemnifications related to the ACA liability should also be considered.
A nuance of the ACA regulation specifically requires that if there is a chance or a reason for a payroll agent to not be considered the common law employer, the costs of providing insurance to an ACA benefit eligible employee should be passed back to the client as an increase in rate for the particular employee.
Do we need to be concerned about “abuse” clauses?
We think so, but of course, ACA regulations are not clear on how to do that. The IRS has been very clear that it will be looking closely at staffing firms and their clients to ensure that staffing strategies do not get created specifically to circumvent ACA insurance requirements.
For example, an employer who turns their entire 50-person workforce over to a staffing firm so as to avoid falling into the “large employer” category would be highly suspect. An employer who employees 48 people and regularly uses a staffing company to provide 5-10 employees for peak busy periods, is likely not suspect, even though their use of temporary staff keeps them below the 50 employee benchmark. The difference? Their temporary staffing strategy was designed to address a business need—not to avoid offering benefits.
Creative strategies like splitting employees between staffing companies and their client or between two staffing companies so that no one “employer” reaches the 50 employee benefits required benchmark are strategies specifically referenced as being prohibited.
While CSS will continue to be strong advocates for all of the business reasons to use more flexible staffing strategies, we will only recommend changes that are based on business need, not ACA avoidance.
Are there future ACA implementations that we should be thinking about for 2016 and beyond?
Yes. None of the anti-discriminatory features of the ACA have been implemented or will be implemented in 2015. Current thinking is that specific regulations related to discrimination will come out in 2015 and be implemented in 2016.
The ACA is clear that any plan or employer contribution that provides a differential benefit in favor of highly compensated employees will be specifically disallowed. This means that employers will no longer be able to provide special plans or higher levels of contribution to their higher paid employees. While these plans and benefits can be offered/made available to all employees, the employees who elect those plans will be paying for them out of after tax rather than pre-tax dollars—dramatically increasing everyone’s costs in both providing and electing these high cost plans.
Also keep in mind that in 2018, employers will be looking at significant taxes on the so-called Cadillac plans—that cost more than $10,200 ($850)/individual. The tax on Cadillac plans is 40%, precipitating current searches for alternatives.
Career Staffing Services is committed to full compliance with the ACA and offers a variety of staffing products and services designed to ensure that our clients have options for containing the costs associated with ACA compliance. For a confidential discussion of how our services might be applied to your temporary and contract employees, contact a member of our team at firstname.lastname@example.org or 501-801-8061.