June 2013 CBA REPORT
Must an employer offer
health coverage to temporary
Beginning in 2014, the employer “pay
or play” rules under the Patient Protec-
tion and Affordable Care Act (“PPACA”)
will impose an excise tax in certain cir-
cumstances on an employer that does not
offer a sufficient level of affordable health
coverage to all of its full-time employees.
If a temporary employee provided by a
staffing agency is an employer’s “employ-
ee” and is considered “full-time” under
those rules, an employer might be subject
to the excise tax if it does not offer cover-
age to that temporary employee.
How does an employer know
if a temporary employee is its
“employee” under PPACA?
Proposed regulations (on which
employers may rely for 2014) provide that
an employer must use the common law
standard to determine whether a tempo-
rary employee is its employee.
The common law standard is the
same standard used to determine
whether an individual is an “employee”
for employment tax purposes and re-
quires an employer to examine the facts
and circumstances of the employment
relationship. If the employer has the right
to control what the individual will do
and how the individual will do it — re-
gardless of whether the employer actually
exercises that control — the individual
will generally be considered the employ-
The IRS will consider a number of
factors to determine whether a tem-
porary employee is considered the
employer’s employee and will examine all
information that provides evidence of the
employer’s degree of control.
Although each situation must be
examined on its own merits, the IRS has
provided an example situation in its Pub-
lication 15-A. In that example, a staffing
agency enters into contracts with clients
under which the clients specify services
to be provided. The client pays a fee to
the staffing agency, which hires the work-
ers, assigns them to the client, controls
the payment of their wages, and provides
them with unemployment insurance
and other benefits. The staffing agency,
not the client, has the right to discharge
or reassign the worker. In this example,
the staffing agency has the right to direct
and control the worker and therefore is
considered the employer.
What if a staffing agency and its
client are co-employers?
In some contexts, a staffing agency
and an employer may be considered co-
employers of the temporary employee.
However, the proposed regulations do
not contemplate the concept of a co-
employment relationship. It appears that
a staffing agency’s offer of coverage will
not relieve the employer of liability if the
temporary employee is the employer’s
common law employee.
Can an employer use a staffing
agency to avoid the excise tax?
An employer could decide to legiti-
mately use a staffing agency to fill one or
more positions that have previously been
filled with the employer’s common law
However, employers should be careful
about the creative use of staffing agen-
cies to avoid the excise tax. The Treasury
Department and IRS have expressed con-
cern about an employer’s use of staffing
agencies to deprive a temporary employ-
ee of his or her full-time status. Future
regulations will likely contain some anti-
abuse rules to prevent this result.
Should an employer’s past
classification of a temporary
employee impact classification
When applying the common law
standard in preparation for the pay or
play rules, an employer may discover
that it has previously misclassified one or
more temporary employees. Employers
will need to consult with legal counsel
to determine how best to address this
Correct worker classification is im-
portant for many reasons and the process
for assessing the pay or play excise tax
may bring mistakes to light.
Employers who have misclassified
temporary employees (or other workers)
may be interested in the IRS Voluntary
Classification Settlement Program,
under which eligible employers can pay
a reduced amount to avoid interest and
penalties that could otherwise be as-
sessed for failure to pay past employment
taxes. Information about this program is
available on the IRS website.
Wilcoxon is a partner inThompson Hine LLP’s
Employee Benefits and Executive Compensation
group and advises employers on the legal requirements
applicable to group health plans.
Frequently Asked Questions
about PPACA and Temporary Employees
Ed. Note: This is the fourth in a series of articles that will be published in the CBA Report over the next several
months related to the 2014 implementation of the Patient Protection and Affordable Care Act. This information
was submitted for publication on April 29, 2013. It does not reflect guidance issued on or after this date.
By Kimberly Wilcoxon