The Issue: Whether the recipient employer or the staffing firm from which the employer hires workers is responsible for offering health coverage to those workers under the Affordable Care Act’s employer mandate.

The Solution: If the contract with the staffing firm has certain IRS-approved terms, the recipient employer will be treated as having offered health coverage to staffing firm workers.

Analysis: Under the Affordable Care Act’s employer mandate, large employers (with 50 or more full-time employees, including full-time equivalents, working an average of 30 hours per week) must offer affordable, minimum value health coverage to their full-time employees, or face penalties if an employee receives a subsidy for coverage purchased from the health insurance marketplaces. Generally, an employer is only responsible for offering coverage to its common law employees. But when companies use staffing firms to round out the workforce, it is not always clear whether those workers would be classified by a court or government agency as common law employees of the staffing firm or of the recipient employer (or both).

The employer mandate regulations contain a “safe harbor” that may mitigate the risk associated with inadvertently failing to offer health coverage to staffing firm workers who are re-classified as common law employees of the recipient employer. The safe harbor applies to a situation in which the staffing firm is not the common law employer of a worker. If the worker receives an offer of coverage under the staffing firm’s health plan, that offer will be treated as an offer of health coverage by the recipient employer so long as the staffing contract provides that the fee the recipient employer pays to the staffing firm for employees enrolled in the health coverage is higher than the fee the recipient employer would pay for the same employee if he or she did not enroll in the health coverage.

The regulations do not specify how much higher the fee must be (so it is possible that even a nominal amount would be sufficient), but the increased fee can only apply to those who elect the staffing firm health coverage, and cannot be spread across all full-time employees. Moreover, the regulations are silent regarding whether this safe harbor is available if both the recipient employer and the staffing firm are considered to be an individual’s common law employer. Additional guidance from the IRS on these issues would be welcome.

Employers who use a staffing firm to provide health coverage should review their agreements with the staffing firms to ensure that they include language that satisfies the safe harbor for offering health coverage. Employers relying on a staffing firm to provide this coverage may also wish to require affirmative statements from the staffing firm that the health coverage offered to the staffing firm’s employees meets the requirements of the Affordable Care Act (i.e., it is minimum essential coverage that is affordable and provides minimum value), and that the staffing firm satisfies the IRS reporting requirements for such coverage.