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Why You Should Use a Staffing Agency to Avoid Obamacare Penalties
When the Health Insurance Mandate Kicks In
Under the Affordable Care Act or ACA, also known as Obamcare, companies with more than 50 full time equivalent employees must provide health insurance or risk paying a fine.
If you have 60 employees working full time today, you could manage the same work load by having 40 full time staff and 40 part timers working half time. However, the IRS guidance on Obamacare clarified the rules to say full time equivalents in an effort to prevent companies from circumventing the full time rule by using multiple part timers. And IRS Notice 2011-36 states that the IRS has the right to use a look back period to see if the company recently cut the hours of previously full time staff in an effort to avoid the health insurance mandate
Businesses must provide affordable health insurance defined as not more than 9.5% of the family income. Businesses that do not provide affordable coverage have to pay a penalty that starts at $2,000 per employee. However, the penalty excludes the first 30 workers. If your company is on the edge of this threshold, hiring additional help as necessary through a staffing agency while automating existing jobs or outsourcing business processes like payroll will allow you to have enough help on hand while altering your business operations to stay under the Obamacare penalty thresholds long term.
If a business has fewer than 25 full time equivalent employees, it could be eligible for small business health care tax credits for existing employees.
Employers with more than 200 employees are required to have health insurance and enroll new employees automatically in the health care plan.
The Benefits of Using a Staffing Agency and Temporary Workers under Obamacare
If you define the positions as temporary and fill them using a staffing agency, your work will still get done while that position does not count toward the full time employee count. If you are close to one of the thresholds at which you must provide health insurance or pay the associated fines, using a varying number of temporary workers hired through staffing agencies can save your company significant money and benefit costs.
A small business that brings in temporary staff as needed while remaining below this 25 FTE threshold could receive significant tax savings as a result of using temps instead of hiring more full time staff, despite the initial higher hourly rate temporary personnel receive.
Section 2708 of the Affordable Care Act states that companies cannot have a waiting period of more than 90 days before new hires can enroll in health insurance plans. If you want to wait longer before having to go through the costly process of enrolling new hires and their dependents into health insurance plans, the temp to permanent hiring model is the lowest cost option your business still has.
Companies can delay the cost of providing health insurance for new hires by using the temp-to-permanent hiring plan. The company contacts a staffing agency and describes the type of people that it needs. The staffing agency finds qualified candidates who then start temporary positions with the company. If the company finds that the temporary worker is not a fit with the necessary skills or corporate culture, they can request someone new instead of having to fire a new employee and offer COBRA.
If the temporary worker works well, they may stay until the individual is no longer needed. The company has then avoided the cost of hiring someone, providing benefits and then having to continue benefits after laying the person off. If the temporary employee is a good fit and his or her skills turn out to be needed long term, the company has enjoyed a long trial period without being obligated to provide costly health insurance.
Why Temporary Staffing Is Better than Business Process Outsourcing
Unlike business process outsourcing or BPO, companies have control over contractors hired via a staffing agency. They also retain full control over their business processes, instead of having to figure out how to outsource their entire payroll or supply chain processes to a third party.