The American Staffing Association recently released an Issue Paper on understanding how the look-back rules work in regards to the Affordable Care Act. We thank ASA for allowing us to share this with you, but please consider joining the association if you are not currently a member.
The ASA promotes legal, ethical, and professional practices for the Staffing Industry, and there are many resources available to members. We encourage all Staffing Professionals to become members of the association to take advantage of the many services that ASA provides to the industry.
In this Issue Paper, Senior Counsel Ed Lenz explains how the look-back measurement period came into being, due to the difficulty for many staffing firms to classify employees as full-time. This issue arises from the transient nature of many Staffing Industry employees.
In his paper, Lenz clarifies that in order to use a look-back-period to avoid penalties, an employer must have had a health plan in place for which for which the employee would have been eligible except for the fact that they were in a look-back period. To avoid the so-called “A” penalty, the plan must be at least a basic MEC plan. To avoid the “B” penalty, the plan must qualify as “minimum value” (MVP). Employers with only MEC plans will be subject to the “B” penalty in any month during which an employee worked full-time (i.e., at least 130 hours) and who received a tax subsidy from an ACA healthcare exchange, regardless of their variable hour status.
Lenz points out that most staffing firms offering only basic MEC plans do not use a look-back period to defer the offer of coverage. That’s in part due to the risk that the IRS could later rule that the employees should have been classified as full-time at the start, which could result in an “a” penalty assessment for every employee who worked at least 130 hours in a month. Instead, Lenz advises as follows:
“To avoid “A” penalties, the best practice for staffing firms, in ASA’s view, is to offer at least a basic MEC plan to all new full-time employees either at the time of application, the start of an assignment, or after a short waiting period (e.g., 60 days) after the assignment starts—even if they could be classified as variable-hour employee, subject to a 12-month look-back. In fact, because basic MEC plans are inexpensive, and to avoid tracking hours, some staffing firms simply offer the plan to all new employees even if they are not expected to work full-time hours.” (emphasis added)
In short, this is why Essential StaffCARE clients were advised early on, when the look-back rules and MEC plans were developed, to always offer their MEC coverage to every employee at their time of job application (i.e., when completing I-9 and W-4 paperwork). This strategy was developed to protect employers from the confusion and complexity of the ACA. We called this our “MEC Safety Net Strategy”.
Please take advantage of the information in the ASA Issue Paper, and, if you are not currently a member, we hope you take advantage of the professional knowledge and expertise that the ASA offers.
Please contact your ESC Representative today at (877) 372–2203 or sales@essentialstaffcare.com.
Smart staffing companies are listening to Essential StaffCARE before making their final ACA decisions.
Three years ago, when MEC plans first arrived on the scene, Essential StaffCARE was the first to recommend offering this plan to ALL employees and job applicants for added protection, not just full-time calculated employees.
We called this our “Safety Net” strategy. In 2013, we described in detail how this strategy would protect staffing companies from potential repercussions stemming from accidental employee misclassification or reclassification, including the gray area associated with the Variable Hour rule and determining Full Time status.
Today, our clients are thanking us for recommending this Safety Net strategy early on. It provides greater protection against retroactively triggering the nuclear “A” Tax ($2,000 tax per full time employee), which has the potential to put some companies out of business.
Other MEC providers were not as forward thinking, which is causing concern among some staffing companies today, now that ACA is shifting from implementation to enforcement. When the IRS starts auditing staffing companies over ACA compliance, many companies will wish they had this important Safety Net.
WHY YOU NEED ALL EMPLOYEES AND JOB APPLICANTS (REGARDLESS OF THEIR INITIAL JOB CLASSIFICATION) TO COMPLETE THE ESC ENROLLMENT FORM AND EITHER ACCEPT OR DECLINE COVERAGE !!!
Issue:
- Staffing Company with 300 full-time employees based on look-back rule.
- Only offers ACA compliant coverage to 285 (95% of 300) temps thought to be full-time
- IRS audit identifies 20 employees who are re-classified as full-time status, due to their hours worked.
- Now there are really 320 full-time employees, not 300.
- MEC plan was offered to 300, not 320, due to re-classification of 20 employees.
- 300/320 = 93% Offer Rate (below 95% threshold)
Result:
- Staffing Company fails to meet the 95% offer threshold, and is treated under ACA rules as if they did not offer any ACA coverage at all.
- This triggers the $2,000 A-Tax under section 4980(h) on all 320 Full Time employees.
- Penalty = $2,000 x 320 = $640,000 tax penalty
- ESC provides the lowest employer cost ACA solution combined with the highest level of compliance certainty
Contact us today for more information. We provide the insight and experience to keep your company ahead of the curve and reduce your risk. Please contact your ESC Representative today at (877) 372–2203 or sales@essentialstaffcare.com.
AND OUR CLIENTS HAVE NOTICED…
“I can honestly say that this open enrollment was the smoothest one I have experienced. I give a lot of credit to (ESC) for staying ahead of the process and communicating with us so well.”
- Rachel Stevens, CEBS, SPHR, SHRM-SCP | Director of Benefits & Compensation | Staffmark
“Our experience with Essential StaffCARE has been excellent. In fact, we haven’t had any issues during enrollment. I appreciate the new Indemnity and MEC form. It’s much better and easier for employees to understand. And, in my opinion, the ESC Support Center is very good.”
- Stephanie Zander, Benefit Specialist | Nexeo Staffing
ESC is dedicated to providing employee benefits to the Staffing Industry and helping its clients navigate the complex waters of ACA regulation and compliance. If you have a question or need assistance, please contact your ESC Representative today at (877) 372–2203 or sales@essentialstaffcare.com
