, ACA Regulations & 1099 Classification: Are You Compliant?

ACA Regulations & 1099 Classification: Are You Compliant?

Don’t Ignore the Warning Signs!

Two of the most critical components of managing a workforce are compliance with the Affordable Care Act legislation (ACA or Obamacare) and Independent Contractor classification (1099). Employers are bombarded with information about the failure to comply because of the risk of penalty and heavy taxation. For many businesses, it’s not just the penalties that are a concern, but all the time and effort that goes into complying with an audit.

 

ACA Compliance Is Not Just For Staffing Agencies!

A major provision of the ACA legislation known as “shared responsibility” (26 U.S.Code §4980H) states that “common law” employers are liable if a temporary agency does not comply with the ACA. Employers with over 50 full time employees, working at least 30 hours per week, must offer affordable insurance that provides minimum coverage, and/or that employees must seek to obtain at least the minimum coverage. If you have more than 50 employees and your agency does not provide ACA coverage, your business will be held liable and will face a penalty. Agencies must offer coverage that does not exceed the 9.5% income threshold, and they must contribute 60% of the cost of premiums. Assuming that you’re agency has it covered could mean significant loss in revenue. As an employer, you need to make sure your agency has their compliance program together. A few things to look for: address the shared responsibility provision, including the language in the contract/addendum to address any possible issues, indemnification in case of an audit and clearly written expectations around all the variables in the ACA, including the cost.

 

Classifying 1099s Is A Greater Risk than Ever

A big focus for employers hiring Independent Contractors is classifying their status correctly. Businesses typically save money hiring ICs because they avoid paying federal and state taxes, insurance and administrative overhead. However; if employers misclassify a worker(s) major penalties will be levied on both federal and state levels, not to mention workers compensation revisions etc. The risk is now amplified because of the ACA legislation. For example; if an IC working on a yearlong contract becomes ill and he or she goes to the Department Of Labor or the IRS for reclassification as a W-2 and be backdated to their start date, the situation just became a nightmare on your desk and liability on your balance sheet.

 

For smaller employers, converting W-2s to ICs is one way employers look to avoid the ACA mandate because ICs don’t count toward the 50 employee threshold. Because of this, the government is going to look deeper into employers classifying workers, especially employers who move W-2 employees to 1099. In addition to back pay and penalties with misclassification, the ACA mandate penalties can also be assessed once the mandate is enacted in 2015.

 

It’s another risk that employers need to mitigate, reduce or transfer. If TargetCW can give you a second opinion or help you make sure your contingent workforce is compliant, pick up the phone and give us a call. We’re more than just great rates and services, we’re here as a partner you can trust.