Independent Contractors, Health Care Reform and Penalties

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Published Date: 02/24/2014

 

Pat; Rountree

By Pat Rountree

 

Are there new regulations that now require independent contractors to be covered under the group health plan?

 

No! (unless the independent contractor should really be classified as an employee)

 

We have advised in previous articles that misclassification of employees as independent contractors has been a hot button for the US Department of Labor (DOL) for some time. It is also an issue with the IRS because of unpaid employment taxes, and affects unemployment insurances taxes and workers’ compensation coverage. Under the Health Care Reform law, misclassification could result in penalties for small employers if correcting the error would result in putting them over the threshold for the pay or play penalty, which has been delayed. It could also result in penalties:

 

  • If you are a covered employer and a full time equivalent employee who was not covered goes to the exchange and gets a premium tax credit – you will be subject to an affordable care penalty.
  • If your failure to assess or measure full time equivalent hours resulted in your offering health care coverage to less than 95 percent of your “full time” employees – you would have to pay a no coverage or shared responsibility penalty assessed on all full-time employees (even those with coverage) less 30.

 

This is one more reason to make sure that your independent contractors truly are just that.

 

There are a number of factors considered by the IRS and the DOL in determining if a worker is an independent contractor or an employee. A brief description of a true independent contractor is as follows:

 

  • The employer does not control the means and manner of how a project is performed, only specifying the expectations of the end result.
  • The “contractor” has a viable business concern, having the opportunity to make a profit or suffer a loss, and provides the same services to other employers.
  • The “contractor” absorbs expenses incurred during the project.

 

For more resources, see http://j.mp/ic-dd and http://j.mp/irs-3 (see Determining Whether the Individuals Providing Services are Employees or Independent Contractors, and Common Law Rules).

 

Although recent changes to the Health Care Reform law delay the “pay or play” penalties for small employers, all employers are encouraged to revisit their classifications if there is any doubt.

 

If you have questions about employee classification, please contact a member of CAI's Advice & Resolution Team at 919‑878‑9222 or 336‑668‑7746.

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