Employer clients commonly ask their health insurance brokers about benefit responsibilities for “temporary” employees. They want to know the rules about offering coverage to such employees, including when coverage should be offered (if at all), and if the offer of coverage must be reported to the Internal Revenue Service (IRS) under federal Affordable Care Act (ACA) requirements.
Temporary employees are hired by employers to help meet business demands, while allowing the employer to avoid the cost of hiring regular, full-time or part-time employees. Sometimes temporary employees are hired from a Professional Employer Organization (PEO) or other staffing agency to work on assignment for the contracted employer. Sometimes, they are hired directly by the employer.
In order to evaluate and determine an employer’s responsibility for temporary employees, the employer must first determine whether the business is an Applicable Large Employer (ALE) under the ACA, required to comply with the Employer Mandate. Refer to Word & Brown’s “Employee Count” reference for California Employers or Nevada Employers for help making this determination. Under the Employer Mandate, ALEs are required to offer affordable medical coverage [based on self-only coverage for the lowest-cost-plan offered that meets Minimum Value (MV)] to full-time (FT) employees, and must also offer at least Minimum Essential Coverage (MEC) to those full time employees’ dependents. A “full time” employee under ACA law is one who provides at least 30 hours of service per week, or 130 hours of service per month, for the employer.
Temporary Employees: Applicable Large Employers (ALEs)
The ACA’s Employer Mandate requires ALEs to offer coverage to all FT “common law” employees. Whether the ALE hires “temporary” employees directly or through a PEO/staffing agency, coverage must be offered to these employees once they’ve satisfied standard eligibility requirements (FT hours of service, waiting period, etc.) – as long as they are considered common-law employees. Under IRS common-law rules, anyone who performs services for an employer is an employee of that employer if the employer controls what will be done and how it will be done. In most cases, “temporary” employees hired directly, or provided by a PEO/staffing agency, are considered common law employees.
To comply with the Employer Mandate, the ALE can firstly offer these “temporary” employees coverage on their group health plans. Or, if utilizing a PEO/staffing agency that offers a health plan to its employees, the ALE can satisfy the mandate by paying an additional fee to the PEO/staffing agency for each employee that elects coverage offered through that PEO/staffing agency.
In either situation, the ALE must always report on the coverage offered, or not offered, annually to these (and all other) common law employees annually on IRS Form 1095. If the coverage is offered through a PEO/staffing agency, the ALE will under code 2E on line #16 of the Form 1095.
Temporary Employees: Non-Applicable Large Employers (Non-ALEs)
If an employer is not an ALE, it should refer to its state or carrier’s definitions of eligible employees. If a temporary employee’s assignment extends beyond its pre-determined end date, the employee may meet the definition of an eligible employee outlined below. If so, coverage should be offered.
- In California, an “eligible employee” (for benefits) is a permanent employee who is actively engaged on a FT basis, who meets the criteria outlined in California Code HSC 1357.500.
- In Nevada, an “eligible employee” (for benefits) is a permanent employee who has a regular working week of 30 hours or more. The term includes a sole proprietor, a partner of a partnership, or an employee of a leasing company – if the sole proprietor, partner, or employee of the employee leasing company is included as an employee under a health benefit plan of a small employer. Refer to Nevada Code NRS 689C.065 for more information.
Note: The ACA defines “temporary” and “seasonal” employees differently. Stay tuned to this column for a future feature on “seasonal employees.” For additional information, and for all compliance support, contact the WBCompliance team via email at ComplianceSupport@wordandbrown.com or call 866-375-2039.