Could "Obamacare" Increase the Demand for Contractors?

Like it or not, it looks like the Patient Protection and Affordable Care Act (PPACA), otherwise known as "Obamacare," is here to stay. Even if the upcoming election is a Republican landslide, experts say it is unlikely that the healthcare reform will be completely repealed.

One of the upcoming provisions that is worrying employers the most is the employer mandate. Under this provision, employers with 50 or more full-time employees will be required to provide affordable healthcare insurance or pay a $2,000 annual penalty on each employee, minus the first 30 employees.  Even if they do offer insurance, they could be subject to penalties if the coverage is “unaffordable,” meaning that it costs more than 9.5% of an employee’s income or the employer pays less than 60% of the premiums. And if they do offer coverage, their plan will be subject to new taxes and requirements under the PPACA that will increase their costs and administrative burden.

Even though the mandate won’t take effect until 2014, employers are already looking for ways to avoid these costs.  Some may shift some of their full-time employees to part-time to get below the mandate’s threshold.  Others may be tempted to classify workers as 1099 Independent Contractors, but since there has been a crackdown on worker misclassification at both the state and federal levels, this isn't the wisest choice.

Some business owners are even considering breaking up their companies into smaller businesses to get around the employer mandate, according to a recent CNNMoneyarticle. But since the employer mandate looks at the total number of workers employed under common ownership, that also is not a viable option.  

One possible solution is utilizing contractors who are W-2 employees of a recruiter or a contract staffing back-office.  In this scenario, it doesn't matter how many hours the contractor works because they will be counted as an employee of the recruiter or back-office, not the company.

The demand for these types of positions has already surged since the recession due to economic uncertainty, employers' desire for a flexible workforce, and increased employment regulations. In fact, according to the American Staffing Industry, temporary/contract positions accounted for 91% of job creationbetween June 2009 and June 2011. 

Only time will tell if Obamacare really affects the number of contractors in the workplace, but as employers try to contain their costs, contract staffing offers a viable solution.  You will want to be sure that you are able to provide contractors so that you can be a sole-source provider to your clients, able to handle ALL of their staffing needs. But keep in mind, if you have more than 50 contractors and you run your own back-office, you will be subject to the employer mandate and will either need to offer insurance or pay the penalty. If you outsource to a contract staffing back-office, the contractors will become their W-2 employees, so the back-office, not you, will be responsible for complying with PPACA.

This article is for informational purposes only and should not be considered legal advice.

Views: 300

Tags: Benefits, Compliance, Legal

Comment by bill josephson on July 25, 2012 at 8:24am

Debbie, there's no question if Mitt Romney doesn't win and the GOP control Congress Obamacare becomes impossible to remove and business' response will be exactly what you articulated.

I've been told by clients that Obamacare will likely add upwards to 12K per employee per year to healthcare costs, 3/4 or 9K to the employer and 1/4 or 3K to the employee.

If businesses have added costs to hire permanent employees, why would they do so?

Instead, they'll hire/retain a core of superstars (rain makers) to drive the business and back fill around them with contractors reducing their number of full time employees, plus offshore outsource more work overseas where they can hire 4 Indians per American in India, 9-10 Chinese per American in China.

So as a Perm recruiter you can likely tell who I'll be supporting for president this November.  For recruiters placing contractors-Obama will certainly help drive your business, if any companies are left here after he's done.

 

The way to increase employment is keep reducing the cost of doing business here until it's in business best financial interests to expand and hire here.  If a guy wants to fit into a 34 inch waist pair of pants he keeps losing weight till it fits.  It's very simple.  A business profits/expands thus needs more employees.

 

If you saddle business with EPA regulations, government mandates, higher taxes, and government regulating pay all providing for workers oriented and tell the company they're now free to do anythting they want with what they have left, I can guarantee you we'll have fewer businesses and less jobs, certainly less perm jobs.

 

Just my five cents with 32 years recruiting experience..........

Comment by Suresh on July 25, 2012 at 10:41am

Debbie, thanks for the specifics. This is tough situation overall. Without economy growing faster, we are not going to be creating much jobs.

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