Denver Staffing Agency – Staffing Firm or Client, Who is the Responsible Employer Under ACA?

  • Posted by: J. Kent Gervasini |
  • 6/30/13 |
  • 9:25 PM
Denver Staffing Agency – Staffing Firm or Client, Who is the Responsible Employer  Under ACA?

Part 1 of 2

J. Kent Staffing, a Denver, Colorado, woman-owned, staffing firm and temporary help agency has been working hard to implement the Affordable Care Act (ACA), signed into law by President Obama on March 23, 2010. 

The following article has been prepared by Ed Lenz, Senior Legal Counsel for the American Staffing Association (ASA) and Alden Bianchi, an expert in employee benefits and executive compensation.  Together they have been working directly with the IRS and U.S. Treasurary Department on behalf of ASA and the staffing idustry.  Therefore, we would like provide additional information regarding ACA that affect Denver staffing agencies and its employer/clients.  

Ed Lenz is senior counsel for the American Staffing Association (ASA). He led the staffing industry's discussions with the Obama administration on the development of the employer regulations and their application to temporary employees employed by staffing firms. He also is author of "Co-employment—Employer Liability in Third-Party Staffing Arrangements," now in its seventh edition, published by ASA.

Alden Bianchi is a member of the law firm Mintz Levin and heads the firm's Employee Benefits & Executive Compensation Practice. He represents employers, including staffing firms, regarding ACA compliance and recently testified before the IRS on the proposed employer regulations on behalf of the nation's largest employers.

ASA - Legal Analysis - Part 1
Will Clients Have Employer Obligations for Staffing Firm Employees Under the ACA?
(06/03/13) Edward A. Lenz, Esq. and Alden J Bianchi, Esq.

Third-party employer arrangements, such as temporary and contract staffing, have historically posed unique employer liability issues. In the context of the Affordable Care Act (ACA), the question is whether and under what circumstances the law might require a staffing firm client to offer health insurance coverage or pay penalties as an employer—or co-employer—with respect to a staffing firm's employees.

The Term “Employer” For Purposes of Employer Responsibility Under ACA Has Same Meaning as Under ERISA
The term "employer" for purposes of the employer responsibility provisions of the Affordable Care Act has the same meaning as under the Employee Retirement Income Security Act and therefore will be determined using the common law multifactor test.1 Staffing firms generally should meet this test and therefore will be responsible for ACA compliance regarding the employees they assign to clients. Clients generally should have no employer obligations with respect to those employees;but they may be viewed as the responsible employer if they use the staffing arrangement primarily for the purpose of avoiding their employer obligations under the ACA.

Temporary Staffing Firms Can be Common Law Employers Under ACA
The government expressly recognizes that temporary staffing firms can be common law employers under the ACA. The proposed employer regulations, published by the U.S. Treasury Department and the U.S. Internal Revenue Service on Jan. 2, 2013, expressly invited comment on "how a special safe harbor or presumption should or could be developed with respect to the variable hour employee classification of the common law employees of temporary staffing agencies."2 The proposed regulations cite a 1970 IRS revenue ruling as "an illustration of the facts and circumstances under which a temporary staffing agency (rather than its client) is the individual's common law employer."3

Staffing Firms Satisfy Test as Common Law Employer
Of course, since common law employer status is based on specific facts and circumstances, it cannot simply be assumed that a staffing firm will be a common law employer in all cases. But staffing firms generally should satisfy the test since:

  • they are not only the employers of record for payment of wages and benefits and for withholding and paying employment taxes, but also
  • because they recruit, screen, and hire the employees,
  • establish employment policies governing their job performance and conduct,
  • have the right to terminate or reassign them, and
  • retain the right to control how the employees perform their work (although court rulings and IRS determinations make clear that such control does not actually have to be exercised).

2011 9th Circuit U.S. Court of Appeals Upheld Common Law Employer Status of Staffing Firms
The 1970 revenue ruling cited in the proposed regulations involved a situation where the service firm provided on-site supervisors. But, as noted, this is not a requirement of common law employer status. More recent federal court rulings, including a 2011 decision of the 9th Circuit U.S. Court of Appeals, have upheld the common law employer status of staffing firms based on facts and circumstances that are typical of most staffing arrangements and that did not involve on-site supervision.4 It also is possible that a worker may be a common law employee of both the staffing firm and the client.5 In such a case a client could, but would not be required to, assume ACA responsibility for the staffing firm's employees. Few, if any, staffing firms or clients are likely to consider taking such a position.

Client May be Deemed to be the Responsible Employer if Using a Staffing Firm to Avoid Employer Responsibility
The proposed employer regulations do indicate that, in certain cases, a client may be deemed to be the responsible employer if the staffing arrangement is used for the primary purpose of avoiding the client's employer responsibility. For example, if a staffing firm and client split an employee's weekly hours to make it appear that the employee is not working full time, all of the employee's hours generally will be attributed to the client. As the law is implemented, additional abuse situations will likely be identified and addressed in regulations or other guidance. But absence abuse, staffing firms should generally be considered the common law employer based on traditional multifactor analysis.

Staffing Firms Have Pledged to Fulfill Their Employer Responsibilities Under ACA
Staffing firms for decades have assumed responsibility as employers for myriad employment and labor law obligations—it is a hallmark of the staffing business. Staffing firms have pledged to faithfully fulfill their employer responsibilities under the Affordable Care Act—and ASA has published a statement of principles reflecting this pledge. As long as staffing firms meet those obligations, few issues should arise regarding their employer status.

1 78Fed. Reg. 218 (Jan. 2, 2013) at 221
2 78Fed. Reg., Id. at 230
3 Rev. Rul. 70-630 (1970-2 CB 229
4 See e.g., Burrey v. Pac. Gas & Elec. Co., 1999 U.S. Dist. LEXIS 22619 (N.D. Cal. May 12, 1999) and Blue Lake Rancheria v. US, 653 F. 3d 1112 (9th Cir. 2011) upholding the common law employer status of temporary staffing and employee leasing firms.
5 Blue Lake Rancheria v. US, 1120; 78 Fed. Reg. 6057 (Jan. 19, 2013); Rev. Rul. 66-162, 1966-1 CB 234.

Part 2
Will Clients Have Employer Obligations for Staffing Firm Employees Under the ACA?

Delve Further into Employer Responsibilities!

Source:  American Staffing Association (06/03/13) Edward A. Lenz, Esq. and Alden J Bianchi, Esq.

The information in the article above is intended for general education purposes only and should not be relied upon as a substitute for professional, legal, and/or accounting advice.

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