How Independent Contractors Factor Into Your Affordable Care Act Compliance

Align with IRS guidelines
HR will need to evaluate how your company’s full-time independent contractors and workers from staffing agencies line up with the IRS’ guidelines. Generally, the IRS considers individuals to be common law employees if your company is authorized to direct and control the way they perform their services. However, it isn’t that simple. The Internal Revenue Manual lists many factors that should be used to identify common law employees and related considerations.

The IRS estimates that employers misclassify millions of workers as independent contractors instead of employees, thus avoiding the payment of employment taxes, according to the Treasury Inspector General for Tax Administration. The agency has long viewed worker classification as a major contributor to the tax gap and as a result has actively audited employment classification—a trend likely to intensify under the ACA. In addition, the U.S. Department of Labor has entered into alliances to promote enforcement and information-sharing about cases of worker misclassification with the IRS.

Start now
With enough time and resources, the process is manageable, so HR staff should start their analysis now. They need to know how many employees must be offered coverage during the open enrollment period this year to meet the 70% threshold for 2015. Acting now will also help position your company for 2016 and beyond, when the coverage threshold becomes more stringent.