Here’s another look at the kind of regulatory issue that can separate the elite benefits specialists from the order takers. Federal benefits rules and compliance policies are evolving rapidly, but the professional employer organization (PEO) seem to be reasonably stable, and here’s how the situation looked at press time. Even if the rules change dramatically, whatever comes next may continue to reflect some of the provisions previously in effect
Most professional employer organizations (PEOs) employ internal staff who run the company and recruit the temporary employees and workers to perform temporary work for the PEO firms’ clients (recipients). The latter often consist of lower-wage employees, sometimes with high rates of turnover.
Temporary employees have, at least in the past, shown little interest in obtaining health insurance coverage. Thus, many PEO firms have not provided health benefits to those workers. They are more likely to have arrangements under which the internal employees are provided major medical benefits, and the temporary employees are offered no plan or perhaps a limited benefit plan. The employer mandate rules encourage broad-based offers of major medical health coverage to all full-time employees and dependents. Thus, many PEO firms that do not offer affordable minimum value coverage to at least 95% of their full-time employees will be subject to an annual nondeductible employer mandate penalty of $2,260 multiplied by the number of all full-time employees, including full-time temporary employees, less thirty.
Additionally, nondiscrimination rules, presently delayed, will apply to health insurance plans. Those rules are to be based on Internal Revenue Service regulations, not yet issued, and modeled on the nondiscrimination rules that apply to self-insured plans. There are exclusions in the self-insured nondiscrimination rules that allow exclusion of high-turnover employers or part-time employees.
1. The Employer Mandate and PEO Employees Working for Recipient Employers
For the employer mandate, employee status is determined under the common law standard. A worker is a common law employee if the employer has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. It is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if the employer has the right to do so. It is uncertain whether the PEO can take over the liability for the Affordable Care Act (ACA) employer mandate as provided by Internal Revenue Code (IRC) Section 4980H.
The Small Business Efficiency Act of (SBEA), which was signed into law in 2014, avoids addressing this issue by stating that “nothing in this section shall be construed to affect the determination of who is an employee or employer.”
Historically, many temporary employees assigned by PEO firms to client firms have been treated as common law employees of the PEO firm. There is no reason to believe this will change, at least with respect to traditional temporary PEO services. PEO employees performing services for many clients, such as payroll services, likely will continue to be PEO employees unless the PEO leases back employees performing payroll solely for one recipient employer. However, where the PEO employee is assigned to one recipient employer, it is likely that the worker will be the common law employee of the recipient if the recipient determines the services to be performed and has a right to determine the details and means used by the employee to perform those services.
Additionally, the employer mandate regulations preamble states that if the primary purpose of the PEO arrangement is to avoid the employer mandate provisions of the Act, the client may be the responsible employer.
2. Obtaining Minimum Value Coverage to Satisfy Employer Mandate
The Affordable Care Act insurance market reform provisions require that insurers guarantee the availability and renewability of health insurance products in the individual and group markets with no exclusions for pre-existing health problems.