Companies that use staffing agencies to supply workers face special issues in determining their risk for the significant penalties under the Affordable Care Act's "play or pay" rules.

Under the "play or pay" rules, an employer who fails to make an offer of coverage to 95% of its full-time employees in 2016 will be liable for a penalty if a single one of its full-time employees obtains coverage on the exchange and receives a premium subsidy. The amount of the penalty for the year can be significant -- $2,084 multiplied by the total number of full-time employees (after a reduction of up to 30 employees). An employer who offers coverage to the required percentage of employees may owe a penalty if the coverage offered is either not affordable or fails to provide sufficient value. The amount is $3,126 for each employee who obtains coverage from the exchange and receives a premium subsidy.

Employee means a common law employee. Generally, a worker providing services to an employer is a common law employee if the employer has the authority to direct and control the manner in which services will be performed. An employer who has authority over workers supplied by a staffing agency may be at risk for having those workers characterized as its employees for purposes of the "play or pay" rules. Because employers do not offer health coverage to workers supplied by staffing agencies, classification of these workers as common law employees could trigger liability for the ACA penalties. For example, an employer who offers coverage to 96 out of 100 full-time employees would not owe a penalty under the 95% rule. But if five workers provided by a staffing agency are in fact common law employees of the employer, the employer could owe a penalty of $156,300 ($2,084 multiplied by 75 -- the number of full-time employees less 30).

The final regulations under the pay or play rules permit an employer to take credit for an offer of coverage made by a staffing agency, but only if the employer pays the staffing agency more for a worker who accepts the offer of coverage than the employer would pay if the worker did not accept the offer of coverage. The typical staffing agency contract prior to the enactment of the final regulations contained no such provision.

Employers who make use of staffing agencies will want to carefully consider the risk that workers provided by staffing agencies could be characterized as the employer's common law employees. If there is a risk, the employer will want to consider how many staffing agency workers are typically part of the workforce to determine whether ACA penalties may be triggered. Finally, an employer at risk will want to review and, if necessary, amend its agreements with staffing agencies to take advantage of the protection offered by the final regulations.

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