The ACA and the Independent Contractor

by Michael Haberman on March 1, 2013 · 4 comments

 

The Affordable Care Act may use a different definition of employee that may cover independent contractors.

The Affordable Care Act may use a different definition of employee that may cover independent contractors.

If you have read anything the Affordable Care Act (ACA or PPACA or ObamaCare) you know that the law is applicable to companies that 50 or more fulltime employees. There are a lot of definitions in there that go into determining who is a fulltime employee but  moves that many employers have considered are to make reduce the hours of employees to make them less than fulltime or to make employees independent contractors.

Bad idea

I am not going to get into the option of reducing hours. That may not be as easy as people think since the definition of a fulltime employee is someone who works 30 or more hours a week. What I want to discuss is the strategy of calling employees independent contractors.

If you know anything about this subject you know the IRS, the US Department of Labor, the OFCCP, and state departments of labor are all on the alert for companies doing this. To them you are clearly violating the principal of “If looks like an employee, acts like an employee and is paid like an employee it is an employee. Subsequently you owe us taxes on those employees and the employees are probably owed something as well.” For further guidance on independent contractors read The IRS and HR: Who is an Employee? and Independent Contractor: The Devil In Disguise.

The ACA definition of an employee

Even if you have been a “good” employer and have properly classified employees and independent contractors to avoid problems the definition of “employee” that is found in the ACA may still get you in relation to who has to be counted. Attorney Michael Newman of Barger & Wolen, LLP, in his blog post, follows a trail to get to the definition of who is considered an employee under the ACA. (You can find his entire article HERE.) He discovered that the ACA uses the ERISA definition of employee which states: The term “employee” means any individual employed by an employer. As the US Supreme Court has stated before; that definition is about as clears as mud. (I may have paraphrased there.)

Implications of the lack of clarity

With this very loose definition of who is an employee independent contractors could be captured under the umbrella of “employee” for the purposes of determining whether a company has the appropriate number of people to be covered by the law. So attempting to avoid coverage by trying to use more independent contractors may not work after all.

You are better off abiding by the laws, classifying employees and contractors according to the IRS and you will avoid the maximum amount of trouble you can get in. The ACA use of the ERISA definition of “employee” is very likely to be litigated, since the courts have already found it in disfavor, so we will cross that bridge when we get there.

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{ 2 comments… read them below or add one }

Michael A.S. Newman March 1, 2013 at 2:27 pm

Michael: Good points. Authorities have been cracking down on misclassification of employees for a long time, but with the ACA in place, we can expect the scrutiny to only intensify. Not to mention the endeavors of Plaintiff’s attorneys on behalf of supposedly misclassified workers. With the law unclear on this point, categorizing workers as independent contractors without very careful consideration and legal advice might have surface appeal, but is risky in the long run.

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Michael Haberman March 1, 2013 at 2:31 pm

Michael, thanks for comment and your initial inspiration. I am certain the scrutiny is going to really intensify in 2014 and beyond.

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