On March 23, 2010 President Obama signed the Patient Protection and Affordable Health Care Act (the “Act”) into law. This new health care legislation substantially increases employer spending on group health plans and seeks to penalize employers who fail to provide employees with adequate health care coverage. While all of the implications of this historic legislation are still unknown, this summary highlights a few of the Act’s provisions that could dramatically impact the staffing industry.
Under the Act, “large” employers (having 50 or more employees) must provide health care coverage to full-time employees or pay a hefty fine. Large employers that do not offer coverage and have at least one full-time employee receiving a government tax credit must pay a penalty of $2,000 per full-time employee each year ($166.67/month). Large employers that offer “unaffordable” coverage (and have at least one full-time employee who receives a government tax credit) must pay the lesser of $3,000 ($250/month) for each full-time employee receiving a government tax credit or $2,000 for each full-time employee. These penalties quickly add up, placing a significant burden on the staffing industry.
What’s the good news? “Full-time” is defined as working an average of at least 30 hours per week for a period of one month. This qualification may allow staffing firms to exclude employees who do not work full-time for an entire month. Make sure you are careful who you count as full-time employees and how you count them, and by “careful” we mean you should review everything with your attorney before taking any action. The penalties are severe!
Many staffing firms already use a “two-tiered” health plan: providing temporary employees a different or lower level of coverage than they offer to their regular full-time employees. Can staffing firms continue to provide a “two-tiered” plan under the new legislation? First, a staffing firm must provide coverage to its full-time employees or pay a penalty if it falls within the “large” employer provision discussed above. With respect to providing different health care plans, a staffing firm may do so if it does not favor highly compensated individuals with regard to eligibility or benefits. Under the “nondiscriminatory classification of employees” test, a staffing firm can provide a two-tiered health plan if its regular full-time employees and branch office staff receive health coverage despite their compensation ranges. A staffing firm health plan that covers regular full-time office staff in this fashion – and does not include temporary employees - will likely constitute a reasonable classification, but you should consult legal counsel prior to implementing such a plan to make sure the lower plan qualifies as adequate coverage.
How might the Act benefit staffing firms? Businesses now have a greater incentive to limit their payroll to fewer than 50 employees, and will increasingly look to staffing firms to provide temporary or contract employees in order to maintain the status quo and avoid paying excessive penalties. So, this new law may actually drive more business your way.
Although employer assessed penalties will not go into effect until 2014, staffing firms should begin reviewing their current benefit plans with the assistance of counsel to ensure compliance with the Act.