When you think of the upcoming healthcare reform law and all the finance functions that will be impacted, you likely think of groups like Benefits and Payroll. But there’s another finance department that holds a key role: Accounts Payable.
In fact, your A/P staffers hold the key that could determine whether you even have to comply with the new laws – and to what extent.
How so? Hint: Those independent contractor classifications are more important than ever.
A large portion of the new law hinges on the number of full-time employees (FTEs) your company employs.
The healthcare reform law’s “shared-responsibility” rule requires “large” employers (50 or more FTEs) to provide workers with a minimum level of affordable healthcare coverage or pay a penalty.
For some that’s a straightforward calculation. For others, not so much.
These workers muddy the waters
That’s especially true if your company relies on the common — and increasingly more common – strategy of tapping contingent workers like independent contractors (ICs) to get some of the job done.
A legit strategy for sure. And those folks won’t count towards your FTE count for benefits, like health insurance, including the count for the new healthcare law.
That’s as long as those classifications are all correct. But if any of those independent contractors should actually be employees, your count is going to go up. Way up in some cases.
A very expensive example
Check out an example of how quickly that can add up, courtesy of our sister publication, What’s New in Benefits and Compensation.
Say a company has 45 full-time employees. It decides not to offer healthcare coverage because it falls under the reform law’s 50-employee threshold and assumes it’s exempt from the law’s shared-responsibility penalty.
The twist: The company also uses 35 independent contractors.
Then the trouble begins. And a government audit reveals that the ICs are technically full-time employees. That automatically bumps up the firm’s number of FTEs to 80 (45 FTEs + 35 misclassified ICs) and subjects it to the reform law’s shared-responsibility penalty for not offering “minimum essential coverage.”
Under the reform law, the feds automatically subtract the first 30 employees from the penalty. So that leaves this company with 50 employees that should’ve been offered healthcare coverage.
The shared-responsibility penalty slaps employers with a $2,000 penalty for each of these 50 employees – for a total of $100,000 per year.
Of course, this figure doesn’t even account for the additional fines, back pay and tax penalties IRS and the Department of Labor could impose for this employer’s initial misclassification errors.
No time like the present to shore up exposures
No doubt you’ve already been hard at work determining your counts of eligible employees under the Affordable Care Act to assess your responsibilities.
You might want to get A/P in on the process. Have A/P tally the number of contingent or contract workers you also pay.
Hopefully, all classifications were made carefully and with the proper paper trail to support them.
But now’s a great time to double check.
It’s a smart idea to touch base with all supervisors in departments with ICs to review the current responsibilities those workers have. If duties have evolved over the years, there’s a possibility that even a once-independent-contractor has morphed into employee territory.
Get A/P in on this too – after all, they’re some of your best-versed in IRS’s requirements for what makes someone an independent contractor.
And that could prevent a costly mistake that will become even more costly Jan. 1 when Obamacare kicks in.