The Dos and Don'ts of Affordable Care Act Compliance for Employers
The Dos and Don'ts of Affordable Care Act Compliance for Employers


The Dos and Don'ts of Affordable Care Act Compliance for Employers


The Patient Protection and Affordable Care Act (ACA) will take full effect in 2014.

Is your business prepared?

If your company has more than 50 full-time equivalent* employees:

  • It will be classified as a "large business."
  • You will be required to offer government-approved affordable healthcare to a minimum of 95 percent of your full-time employees and their dependents.
  • The cost for that coverage cannot exceed 9.5 percent of your employees' household income.

As a large employer, you have to make the decision to "pay or play."

Pay:You opt not to provide healthcare insurance, and you will pay a fee of $2,000 per year for each full-time employee on your staff (less the first 30 employees).
Play:You agree to provide health insurance, and you will only pay a fine if you have employees who get tax credits for exchange coverage (the fine is $3,000 per employee that receives the credits).

As a responsible employer, you need to develop sound compliance strategies to minimize the ACA's impact on your bottom line. On the following pages, you'll find several strategies your company can use to keep business humming along profitably--while remaining compliant with Affordable Care Act provisions.

* Full-Time Equivalent = Total # of hours worked by all employees (full and part time) over a defined measurement period of one to twelve months / (30 x the number of weeks in the measurement period)

Hire Part-time Employees

One way to reduce ACA costs is to hire part-time workers.

  • Part-timers must work 30 hours or less per week or 130 hours per month.
  • Consider dividing full-time jobs into multiple part-time opportunities. This may allow you to reduce ACA exposure and better match your workforce to your daily or weekly workflow.
  • The one downside of this strategy is that it may be difficult to find qualified workers who are willing to work less than full-time, particularly for higher skill, professional and technical jobs.
Hire Freelancers

Freelance talent may seem like a perfect solution to ACA. But watch out! While freelancers are ideal for some roles, misclassification can get your business into a lot of trouble.

  • Freelancers are best used for projects with a very well-defined scope, and in situations where the freelancer is able to control when, where and how the work gets done.
  • Freelancers (1099 employees) are considered to be self-employed for tax purposes. As the employer, you have no obligation to collect or pay payroll taxes.
  • You are also not required to provide healthcare benefits to freelance employees, which relieves your firm from ACA obligations.

The IRS is aggressively looking for companies that are defining freelance employees improperly. They've hired 16,000 auditors to address compliance issues, and if they suspect that your freelancer is really a direct employee, you can face hefty expenses to defend your hiring practices, and you will be subject to paying back taxes and fines if you are found to be out of compliance.

Divide Business Units Into Separate Entities

If you own multiple businesses, you may be tempted to control benefit costs by dividing business units or different types of businesses into separate entities so that no individual company has more than 50 employees.

Big mistake.

Separate businesses under "common control" will raise IRS red flags because even completely different types of businesses controlled by the same persons or entity are considered to be the same business for the purpose of ACA requirements.

Lease Employees From a Staffing Company

Perhaps the wisest option if you are looking to lessen the blow of benefit costs is to add temporary staff:

  • Temps are employed by the staffing company, not your firm.
  • The staffing company bears payroll, statutory taxes, workers' comp, and benefits expenses, which will include healthcare as of next year.
  • When you hire a new employee, they will be entitled to receive benefits day one.* When you bring in a temp, all the costs of employment are covered in the hourly bill rate.

* Under the Affordable Care Act legislation, new full-time employees must be offered healthcare benefits within a defined administrative grace period. However, there is a new classification of worker, the variable-hour worker, for which a more complex formula has been developed to determine if and when they are eligible for benefits.

How does a staffing company help you reduce ACA liability?
  • Using a staffing firm transfers the responsibility for healthcare insurance from your firm to the staffing company.
  • The Affordable Care Act contains fairly complex provisions for monitoring compliance. If you employ a large number of part-time or variable-hour workers, compliance management can become very costly. Outsource this responsibility to a staffing firm by using temporaries or payrolling staff through a staffing firm.
  • When it comes to insurance costs, staffing firms may have a cost advantage over direct hires because the staffing firm can spread the cost of insurance over all their employees (many of whom will not be eligible for coverage), which results in a lower cost per hour for healthcare.
When does it make sense to use temps?
  • Seasonal work. Many employers, from agricultural to manufacturing to accounting, have big seasonal jumps in their volume of business. Rather than staff for these peaks, maintain a smaller, core workforce, and supplement your team with temporaries as needed. You'll reduce your payroll and exposure to ACA and other employment liabilities.
  • Projects. Bring on workers with skills that may be hard to come by or needed only for specific projects. (For example, a new software or hardware implementation that may require workers with a high level of technical skills for a defined period of time).
  • Support rapid growth. If your business is experiencing rapid growth, supplement your team with qualified temporary workers until you can determine if the increase in demand requires full-time hires.
  • Reduce hiring risk. Take advantage of temp-to-direct services to "test out" new employees before committing to a hire. This way, the new employee is not on your payroll until you are certain that you want to make a hire.
  • High-turnover positions. Temporary workers are ideal for highly transient positions. You can gain more flexibility in hiring and termination without the overhead of managing compliance for these workers.

Temporary employees are ideal whenever you have a short-term or uncertain hiring need. By staffing more strategically, and matching your workforce to your workflow, you can dramatically reduce your labor costs and employment liabilities.

Changing the Way You Do Business

The Affordable Care Act is bringing big changes to the way businesses operate, but savvy executives can keep profitable businesses on track with smart strategies.

  • Minimize impact on your bottom line from increased benefit costs while remaining compliant with upcoming changes to the law with a little forethought and outside-the-box thinking.
  • Thoughtful staffing decisions ensure that you provide your core employees with adequate healthcare coverage without increasing benefit costs by permanently employing more workers than you need.
  • Even if you employ well more than fifty employees, it makes sense to keep benefit costs to a minimum by keeping only as many full-time, permanent workers on payroll as necessary.

Perform the same needs analyses within the company that make you successful in the marketplace. Hire the right number of employees at the right time. Pay the benefits that will bring in strong core employees, but don't incur unnecessary added expense.