Avoiding ACA Penalties for Individuals Hired Through Staffing Firms

David M. Pixley

Applicable large employers (“ALEs”) often utilize workers from staffing firms, sometimes on a long-term basis. For purposes of the pay or play provisions of the ACA, it’s important for ALEs to determine its obligation to make offers of coverage to these workers. The key factor is whether the staffing firm or the ALE is the common-law employer.  There are several factors to consider in determining who is the common-law employer, including but not limited to, who provides the workers with tools and equipment, training, supervision, performance evaluation, and who has the authority to discipline and terminate the workers.

In some cases, it might be unclear whether the ALE, the staffing firm, or both entities should be concerned about making an offer of coverage for purposes of the pay or play provisions of the ACA.

The final regulations contain a special rule for individuals performing services for an ALE member when the staffing firm is not the common-law employer.  If the staffing firm makes an offer of coverage to the worker, on behalf of the ALE member, the offer is also treated as being made by the ALE member for purposes of the pay or play provisions.  However, this is only true when the ALE member pays a fee for individuals enrolled in the staffing firm’s health plan that is higher than the fee that would be charged had the same individual not enrolled in the staffing firm’s health plan.

The guidance is sparse on how to structure these agreements such that a sufficient fee is paid to the staffing firm so that the ALE will not be subject to penalties under the ACA. In light of the complex rules and limited regulatory guidance, ALEs who use workers from staffing firms should seek qualified counsel.