For businesses on the cusp of 50+ employees there now stands a major dilemma. Increase staff, hire independent contractors; stop growing? Due to a new law going into effect in 2014, if a company hits the 50 full-time employee threshold it will have to provide health coverage that meets government standards or potentially face a penalty.
While the new rule doesn’t go into effect until 2014, a business could be mandated to abide by it if during 2013 it averages 50 or more full time employees; thus smart companies understand they need to manage this from in front, now! The government issued the little-noticed regulatory guidance on Dec. 28. Thanks to our Risk Advisory team we are in front of the issue for you.
To avoid the health-care law’s penalties, many employers are considering hiring only part-time employees and some will even deliberately curb growth so that they have no need to hire. For others that need to grow the best solution could be to restructure, outsource certain functions, or hire independent contractors who would be able to take on certain tasks without upping full-time headcount. These strategies are not without their own challenges which is why we suggest a cost benefit analysis that overlays with your short and medium range goals.
Typically, independent contractors ( 10099′) are less expensive for employers, who don’t have to pay taxes on wages or supply benefits. Reliance on independent contractors has increased over the years due to the recession. The trend is expected to accelerate this year given the framework of the looming health-care law. They are certainly not a perfect solution though. You have much less control over hours they work and how much involvement they have in other parts of the business. They will almost certainly take less pride and ownership in the company than a full time employee. If you are a professional organization that maintains errors and omissions insurance it’s critical that you determine where these independent contractors negligence fall within your coverage.
If nothing else, audits will definitely increase in light of the health-care law. Employers have to be very careful about calling someone an independent contractor. Government auditors would determine whether a worker misclassification triggers the health-care law’s employer mandate. The trend lately at both the fed and state level of the Department of Labor is that they are auditing small business for just this type of infraction. If you misclassify workers as independenats versus employees not only are you subject to Obama care, but steep penalties from the Dept of Labor and back taxes to the IRS.
Adding to the confusion for small firms is that an employer’s view of who is an independent contractor may not align with the government’s. The guidelines defining independent contractors are often vague. The IRS can’t account for every different situation. Some considerations include an employer’s level of control over a worker, the permanency of the relationship and how the business pays the worker. Because the definition lacks strict parameters, employers can file a form requesting the IRS to make the determination. We suggest you speak with a Risk Advisor or your companies employment attorney to make certain you are on high ground as this is a very contentious issue, only to get exacerbated as 2014 approaches.
