Employers have always been concerned about the potential for worker reclassification, but health care reform and a recent National Labor Relations Board decision take this issue to an entirely new level. Large employers who offer coverage will be required to offer coverage to all of their full-time workers, defined as at least 95% of employees working 30 hours per week. An employer that offers coverage to only 94% of its full-time employees, and has one employee who enrolled on an exchange with a premium credit, will be subject to annualized penalties of $2,000 per full-time employee, less the first 30 employees. This draconian penalty applies to all employees, not just the percentage excluded from the offer.
Consider that the
Northwestern Universitys website reports that the university has 3,820 full-time faculty and 6,000 full-time staff. Lets consider a hypothetical: on Jan. 1, 2016, the IRS reclassifies enough students and independent contractors as full-time employees so as to cause the university to miss the 95% mark, and at least one employee used a premium credit to purchase coverage on an exchange. It appears that after paying all the health care plan costs, the university could also be liable for a penalty in the neighborhood of $20 million, per year.
The
But the Treasury and IRS rejected the request, arguing that the relief requested would serve to increase the potential for worker misclassification by significantly increasing the benefit of having an employee treated as an independent contractor. In fact, the IRS and the Department of Labor are already engaged in a
We have talked to employees who were eagerly awaiting health care reform so they could leave their employers and start their own businesses. But in another one of those odd twists on the road of health care reform, self-employment dreams, like athletic scholarship dreams, could be imploded by a health care reform land mine. Given the high stakes involved with a failure to satisfy the 95% test, employers need to consider their margin for error, and give serious consideration to the circumstances involving anyone who is performing services but is not being treated as an employee. Keeping in mind that the reasonable basis standard does not apply in the context of health care reform, are you confident that you can establish that the facts and circumstances support your presumption that these people are not your employees, have you calculated the cost of being wrong, and are these relationships worth the risk?
Ann Caresani, a partner Porter Wright Morris & Arthurs Cleveland/Akron, Ohio area, focuses her practice on employee benefits, ERISA and executive compensation. As editor of the firms employee benefits blog