By: Christina Fabugais
With the Affordable Care Act looming, many organizations must make themselves aware of the implications that it has on the way they run their business. The Act, which will be in full effect in 2014, will require employers with more than 50 full time employees to provide affordable health insurance to its employees.
There are a few key things to note:
Employers with 50 or less full time employees are not required to provide health insurance to its employees
Full time is defined as working thirty-hours a week (or more) on average during a one-month period
Independent Contractors are not included in the 50 count
It should come as no surprise that many organizations are now considering increasing their use of Independent Contractors to avoid having to pay into the Act. With the recent crackdown on worker misclassification cases across the US, we can expect the IRS to pick up their enforcement initiatives even more.
What does this mean for your organization?
Using Independent Contractors is a legitimate way of staying under the 50 full time employee mark, however, you must have all your ducks in a row before going this route. Worker misclassification cases can be a long drawn out process, not to mention very costly. Recent cases have employers paying millions of dollars in back wages.
When dealing with Independent Contractors it is important for you to familiarize yourself with the 20 Factor Common Law Test used by the IRS to determine employee vs. self employed status. The Common Law Test focuses on three main areas of an employer and independent contractor relationship:
Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
When working with Independent Contractors your best defence is to utilize a 3rd party that takes on the contractual relationship and specializes in Independent Contractor Compliance. Manoeuvring through federal and state employment and tax legislation can be tricky. Using a specialist can help mitigate your organizational risk significantly by implementing proper classification methodologies, and best practice processes.
• Department of Labor: Affordable Care Act http://www.dol.gov/ebsa/healthreform/
• IRS: Independent Contractor (Self Employed) or Employee? http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-(Self-Employed)-or-Employee%3F