The Employer Mandate: What You Need To Know About Increased Worker Classification Scrutiny

As a business owner, you have likely followed news coverage of the Supreme Court arguments regarding the Affordable Care Act, and are interested to find out which provisions might be affected. One of the more controversial provisions of the Affordable Care Act is the Employer Mandate, which provides that business owners with at least 50 full-time employees will be required to provide health insurance for their employees or be subject to penalties for failure to provide health insurance.

Due to this provision, discussion has centered on the use of independent contractors instead of employees as a way to avoid the mandate, when certain elements are present. Leading up to the implementation of this provision, the IRS and other agencies have taken a more aggressive role in auditing companies for worker classification purposes, as well as generally providing stricter guidelines for the determination itself.

To entice employers to come forward, the IRS rolled out a voluntary compliance settlement program for worker classification issues, allowing employers to come clean for improperly classified workers and accepting a minor penalty in exchange for future classification of the workers as employees. This program has been interpreted by some to be geared toward promoting increased withholding rates, lessening the use of the independent contractor model for the purpose of FICA withholding, and conceivably to bring more employers within the reach of the Affordable Care Act health insurance requirement.

What You Can Do As An Employer

Evaluate their current practices with respect to their use of independent contractors or employees, especially if one is considered changing their current practices due to business purposes. In particular, the traditional IRS 20 factor tests has been paired back to a more simplified examination of both degree of control and independence centering on behavioral, financial and type of relationship formed between the worker and the employer. Evidence of a specific contract and other key financial arrangements are important considerations for an employer to consider and document properly to ensure no trip-ups in the future.

Failure to follow even the minutest details with respect to the relationship can heighten the scrutiny of your company, and give rise to extensive employer tax liabilities. Strauss Troy encourages all employers to contact their legal advisor for further information and a thorough evaluation of their current practices.