Subadhra Sriram's Blog

Healthcare Reform Could Hold Unseen Peril

Who’s in charge? Does it matter?

For the purposes of the Affordable Care Act (ACA) it might. 

Healthcare reform dominates the conversation.  Much of the talk has been on penalties and who bears their cost. But one particular discussion on the look-back rule is particularly worrying for the staffing ecosystem.  And it boils down to who’s in charge, thanks to the IRS’s stated plan to apply a common law standard to decide who the employer of the contingent worker is.

The principal standard the IRS is planning to rely on to determine employer status is who controls the contingent’s work. In most staffing relationships this is the domain of the customer.  Hiring, onboarding, reviews, bonuses and terminations are handled by the agency, but the client supervises the temp’s day to day work.  So although these regulations acknowledge the staffing industry, if the control of work based method goes through, many clients might worry that they could be deemed the employers of contingent workers for Affordable Care Act purposes.

This could have negative consequences for the industry. “Regulations stating the common law approach for FICA, FUTA, and withholding purposes are cited with approval by the proposed regulations. In the past, staff augmentation firms have been allowed to fulfill those obligations for assigned employees without controversy over their common law employer status or lack of it,” says George Reardon, special counsel for employment law firm Littler Mendelson. “If this becomes just another one of those permissive applications of the common law rule, it won’t be a big problem.”

But it could be.  If the client is deemed to be the contingent’s common law employer in a newly-important way, the relationship among staffing firms, customers and contingents could be dramatically affected.

Like many other ACA regulations, the industry has to wait and watch.  But in the meantime, it would be prudent to continue sound practices in co-employment relationships.


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