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If you run a staffing firm or utilize a staffing firm in your business, chances are good that compliance with the Affordable Care Act (ACA) is somewhere on your list of concerns. For people running staffing firms, questions of when to offer coverage and who to cover tend to dominate the discussion. Meanwhile, staffing firm clients struggle to confirm whether ACA penalties will be triggered by staffing-firm employees.

Penalties: the big picture

We will get to what we know about each of these issues, but first, a reminder: The period during which penalties may be assessed under the ACA will begin on Jan. 1, 2015. During this first year, penalties will be assessed only against employers with 100 or more full-time equivalent employees.

In 2016, this number will drop to 50 or more full-time equivalent employees. Penalties will be assessed in 2016 based on information reported in employer tax filings and records of those employees who received help paying for coverage on the insurance exchanges.

Employers are vulnerable to penalties if they either fail to make an offer of coverage to at least 70 percent (95 percent after 2014) of their employees working 30 or more hours per week, or if they make an offer of coverage but the offered coverage is either insufficient or unaffordable. Various forms of transitional relief reduce penalties in 2015 and give some employers a free pass for a few months, but this covers the basics at a big-picture level.

The staffing-firm challenge

At its most fundamental level, the challenge faced by staffing firms and their clients is a question of employment. Specifically, which entity employs a W-2 employee supplied by a staffing firm to a client, or 鈥渨ho’s the boss?鈥� Identifying the W-2 employer matters because penalty exposure and reporting requirements under the ACA are driven by employee count, and a single staffing-firm employee could trigger thousands of dollars in penalties if his or her W-2 employer fails to comply with the ACA.

In addition, many staffing-firm placements are designed to be only temporary in nature or to work erratic hours, triggering further questions about whether and when they should actually receive an offer of health insurance coverage.

ACA compliance

While, like so many areas of the ACA, more guidance on this issue is needed, both staffing firms and the employers who rely on them can help protect themselves from penalty exposure (and in the case of staffing firms, client discontent) with a few steps:

1. Clarify W-2 relationships. Review staffing firm agreements, offer letters to employees and handbook language to ensure that it is clear that the staffing firm operates as a staffed-employee’s W-2 employer. Language directing the employee to contact the staffing firm’s human resources, and not the client company’s human resources is helpful, but both the staffing firm and client entities may want to consult with employment counsel regarding the latest joint-employer issues.

2. Review (and possibly revise) agreements. Final ACA regulations include a special safe harbor for staffing firms and their clients, which relieves clients from penalty exposure for staffed workers where: 1, the staffing firm makes an offer of health coverage to the worker, and 2, the fee paid by the client is higher than the fee the client would have paid to the staffing firm if the staffing firm did not make an offer of health coverage to the employee.

Some staffing-firm clients have asked firms they work with to sign addendums to existing agreements that explicitly provide for these terms. In some cases, this may mean that a staffing firm with fewer than 100 employees will discover that it is in the firm’s business interests to offer coverage to employees it places with larger employers to assuage those clients’ concerns about ACA penalties.

3. Become familiar with the rules and safe harbors. This guidance is really just for the staffing firms, but for those staffing firms that have not already done so, it is not too late to become familiar with when penalties will be imposed for a new hire and when measurement and stability periods may allow the firm to delay making an offer of coverage.

In particular, while the ACA does not include an exception for temporary employees, no penalty will actually be assessed against a new hire until the new hire’s fourth month of employment. This means that very short-term placements do not pose a penalty risk. However, staffing firms must be mindful that an employee who bounces from temporary position to temporary position with the same staffing firm can pose a penalty risk because the law will aggregate the employee’s service in the multiple temporary positions.

Similarly, when used properly, measurement and stability periods can offer some relief. An employee-benefits attorney is helpful in crafting these periods and ensuring that they are properly documented, because measurement and stability periods allow employers to delay making an offer of health coverage to those employees who are brought on for a seasonal or variable-hour position. (A variable-hour position is one for which the employer legitimately does not know if the employee will work sufficient hours to qualify for health insurance.)

Bringing it all together

In light of these complexities and the significant monetary impact that may result for both staffing firms and businesses that use staffing firms, careful consideration of the regulations and the particulars of an organization can save it thousands of dollars in penalties. Taking a proactive approach is likely to be well worth the investment.

Iris Tilley is a partner at Barran Liebman LLP. She advises employers about all aspects of employee benefits, including health care under the ACA. Contact her at 503-276-2155 or [email protected].