The Affordable Care Act (ACA), enacted in 2010, has significantly changed the healthcare landscape in the United States. The Affordable Care Act (ACA) has introduced employer mandates that require applicable large employers (ALEs) to provide affordable health insurance options to their employees or face penalties. The staffing industry, which relies on flexible and contingent labor solutions, is not exempt from these regulations. Staffing firms are at great risk, traditionally operating under low-profit margins. This article will explore the potential financial impact of ACA penalties on the staffing industry, particularly considering the anticipation of strictly enforced ACA regulations and reporting accuracy.

The ACA’s Employer Mandate

Under the ACA, employers with 50 or more full-time equivalent employees are considered applicable large employers (ALEs) and are subject to certain requirements. They must offer affordable health insurance coverage to their full-time employees and dependents, or they may face penalties if their employees receive premium tax credits through the Health Insurance Marketplace. Annual reporting of this information is also required utilizing Forms 1095 and 1094 B and C series to provide employer and employee-specific details to the IRS regarding each ALE’s employer-sponsored healthcare coverage. Regarding healthcare, the actions and reporting requirements detailing those actions conducted by each ALE to the IRS are strictly regulated, and non-compliance is subject to costly penalties. 

The Potential Impact on the Staffing Industry

The staffing industry is vital in the modern workforce, providing flexible and contingent labor solutions to various businesses. Staffing firms typically employ a significant number of temporary or part-time workers. These workers are often used project-by-project or short-term, so they may only sometimes meet the ACA's definition of full-time employees.  Accurate measurements must be completed to understand the exact status of each employee.  For all full-time equivalent employees, ALEs must offer employer-sponsored health benefits which meet ACA requirements of affordable, minimum essential, and minimum value coverage. Additionally, the affordability calculations determine the affordability safe harbor codes that will be used on each employee’s 1095-C form and will only be accurate if the correct rate of pay is provided and calculated against the proper percentage of income annually offered by the IRS based on the federal poverty level.  However, the ACA's complex guidelines for determining full-time employee status and its associated measurement periods can present challenges for staffing agencies. Ensuring accurate record-keeping and compliance with the ACA's regulations becomes crucial, as inaccuracies could lead to penalties and financial burdens.

Hazards for Staffing Firm: Anticipating Strict Enforcement and Accuracy

Staffing agencies must consider the following factors to ensure accuracy in ACA compliance:

1. Employee Classification: Staffing firms must carefully classify employees as full-time, part-time, or temporary based on the ACA guidelines. Accurate classification determines the scope of coverage and the potential penalties associated with non-compliance.

2. Measurement Periods: The ACA allows employers to use specific measurement periods to determine an employee's full-time status. Staffing agencies must establish consistent and transparent methods to track hours worked during these periods, accounting for fluctuating or intermittent employment.

3. Record-Keeping: Accurate and thorough record-keeping is essential for ACA compliance. Staffing agencies should maintain detailed records of employee hours, benefits eligibility, and offered coverage. Implementing robust systems or utilizing specialized software can streamline this process and reduce the risk of errors.

4. Reporting and Documentation: Timely and accurate reporting is crucial to demonstrate compliance with ACA regulations. Staffing agencies should ensure they have systems to generate and submit required reports to the appropriate authorities, such as Forms 1094-C and 1095-C.

Over the years, the enforcement of ACA regulations has varied, leading to some uncertainty for employers, including staffing agencies. With the anticipation of strict ACA regulations, accuracy in compliance and reporting becomes paramount. Employers, including staffing firms, must track and document employee hours, manage eligibility, and provide affordable healthcare coverage to avoid penalties. The information provided to the IRS will be cross-referenced for accuracy, and infractions may be subject to penalties.

ACA Penalty Costs for 2022 Reporting

The specific ACA penalty costs are subject to various factors, including the size of the applicable large employer and the extent of non-compliance. As of 2022, the penalties were as follows:

1. Failure to Offer Coverage: If an ALE fails to offer health insurance coverage to at least 95% of its full-time employees (and their dependents), and at least one full-time employee receives a premium tax credit for Marketplace coverage, the penalty is calculated per month. For 2022, the penalty amount was $2,750.04 multiplied by the total number of full-time employees (minus the first 30 employees). This penalty amount is subject to adjustment for inflation, therefore increasing to $2970 for 2024.

2. Inadequate or Unaffordable Coverage: ALEs offering coverage may still face penalties if the coverage provided fails to meet the ACA's affordability and minimum value requirements. Suppose an employee receives a premium tax credit for Marketplace coverage because the employer's coverage is either unaffordable or does not meet the minimum value standard. In that case, the penalty is $4,119.96 per employee for 2022, increasing annually to $4460.00 for 2024.

Low-Profit Margins in the Staffing Industry

The staffing industry operates on notoriously low-profit margins. Several factors contribute to these narrow margins, including intense competition, client price pressure, and high operational costs. Staffing firms often need help balancing their expenses with the fees they charge for their services, leaving little room for additional costs such as ACA penalties.

The staffing industry's low-profit margins make it especially vulnerable to the potential financial impact of ACA penalties. Even for a few employees, penalty costs can erode the already slim profit margins and negatively affect the firm's financial stability. For smaller staffing agencies, the burden of penalties can be even more significant, as they typically have fewer resources to absorb these costs.

Over the past seven filing seasons, staffing firms have expressed five areas of concern that have directly resulted due to mandates under the ACA.

Five Areas of Concern

1. Compliance Challenges: Some staffing agencies have expressed concerns about the complexity of ACA regulations and their challenges in accurately tracking and documenting employee hours, managing eligibility, and ensuring compliance with the ACA's requirements. Meeting the reporting obligations and avoiding penalties can be particularly demanding for staffing agencies with a high volume of temporary or contingent workers.

2. Financial Impact: The ACA's employer mandates and potential penalties have been a subject of financial consideration for staffing agencies. Many staffing firms operate on thin profit margins, and the additional costs associated with offering health insurance coverage or facing penalties can strain their financial resources. Some agencies have voiced worries about the impact of ACA-related expenses on their ability to remain competitive and provide cost-effective solutions to clients.

3. Effect on Workforce Flexibility: Staffing agencies emphasize providing flexible employment options to workers and clients. The ACA's requirements, such as the definition of full-time employees and the potential penalties for non-compliance, may affect the flexibility and adaptability of staffing arrangements. Some agencies argue that these regulations can limit their ability to meet the changing demands of clients and provide flexible work opportunities.

4. Need for Clarity and Stability: Like many businesses, staffing agencies appreciate clarity and stability in regulations to plan and adapt their operations effectively. Some agencies have called for clear guidelines and consistent enforcement to ensure a level playing field across the industry. They believe the consistent implementation of ACA regulations will allow staffing agencies to develop compliant strategies and make informed decisions about workforce management and employee benefits.

5. Industry Associations and Advocacy: Staffing industry associations play a crucial role in representing the interests of staffing agencies and addressing their concerns related to the ACA. These associations advocate for fair and practical regulations that consider the unique dynamics of the staffing industry. They engage in discussions with policymakers, provide guidance to member firms, and work towards solutions that balance compliance with the ACA and the needs of staffing agencies.

Navigating the Financial Impact

To mitigate the potential financial impact of ACA penalties while also addressing those common areas of concern as a result of the ACA, staffing firms can adopt these proactive concepts:

1. Efficient Workforce Management: By accurately categorizing and tracking employees and effectively managing workforce deployment, staffing agencies can optimize staffing levels and potentially reduce the number of full-time employees subject to ACA penalties.

2. Strategic Pricing and Contract Negotiations: Staffing agencies should carefully consider their pricing strategies and contract negotiations to ensure they can cover the costs associated with providing healthcare coverage and potential penalties. Adjusting service fees or negotiating contract terms with clients to account for ACA-related expenses may be required.

3. Compliance Management Solutions: Leveraging specialized software or compliance management solutions can streamline ACA compliance processes, reducing the risk of errors and penalties. These tools can help track employee hours, manage eligibility, generate reports, ensure accuracy for using compliant formulas for ACA calculations, which vary by year of reporting, and stay up-to-date with changing regulations.

4. Consultation with Experts: Seeking guidance from ACA compliance experts, like SyncStream and HRLogics, or consulting with legal professionals specializing in labor and employment law can provide valuable insights and help ensure compliance with ACA regulations. These experts can assist in understanding complex requirements, navigating potential pitfalls, and implementing effective compliance strategies.

Conclusion

It's important to note that the staffing industry is diverse, and individual agencies may have different perspectives and experiences with the ACA depending on their size, scope, and business model. Consulting industry-specific resources, staying informed about regulatory updates, and seeking professional advice is advisable for staffing agencies seeking accurate and up-to-date information on the ACA.

Expecting strictly enforced ACA regulations, the staffing industry must proactively comply with employer mandates. Accurate classification of employees, careful tracking of hours worked, diligent record-keeping, and timely reporting are critical to avoid penalties and potential financial burdens.

Staffing agencies should consider leveraging technology solutions and consulting with experts well-versed in ACA compliance to navigate the complexities of the regulations. By ensuring accurate ACA compliance, the staffing industry can continue providing valuable employment opportunities while safeguarding financial stability in the face of potential penalties.

SyncStream’s Full Service Total ACA solution will simplify your ACA Staffing compliance needs and put your mind at ease. Allow SyncStream to remove the burden of ACA compliance through penalty risk assessments and suggestions to reduce or even eliminate your company’s risk of high IRS penalties. Subject matter experts utilize SyncStream’s user-friendly compliance software to track employee hours, auto-populate forms, and audit forms for timely distribution and e-file for thousands of ALEs.