Distinguishing employees who are full-time from those who are not takes up a considerable portion of real estate in the final regulations published in the Federal Register on Feb.12 implementing the Affordable Care Acts employer shared responsibility rules. When determining whether an employee is a full-time employee, it is also necessary to determine who employs the full-time employee. To identify the proper employer, the final regulations look to the common law employer/employee standard. In two-party employment arrangements, i.e., where the employer hires the employee directly without an intermediary, identifying the common law employer and the common law employee is a simple matter. This determination gets exponentially more complicated, however, when the employee is instead hired through a staffing firm or professional employer organization.
The question of who is the common law employer/employee is not new. For purposes of the federal tax code and ERISA, employers have historically been required to distinguish between workers who are their common law employees and workers who are not. This distinction is important, for example, when complying with payroll tax and withholding at the source provisions. It also affects the design and maintenance of tax-qualified retirement plans and welfare plans. The ACAs employer shared responsibility rules (which are codified at Internal Revenue Code § 4980H) add another compelling reason to properly determine a workers status as a common law employee: if at least one of an (applicable large) employers full-time (common law) employees qualifies for a premium tax credit from a public insurance exchange, then the employer may have liability under the ACAs employer shared responsibility requirements. Thats if the employer fails to make an offer of group health plan coverage to at least 95% (or 70% in 2015 under a transition rule) of its full-time (common law) employees. Whats at stake here is best illustrated with an example.
