The document discusses the implications of worker classification under the Affordable Care Act (ACA), particularly highlighting the distinction between common law employees and independent contractors. Employers must accurately count all employees, including staff from staffing agencies, to avoid substantial excise taxes for non-compliance, which can amount to $2,000 per year per employee over certain thresholds. The IRS is increasing scrutiny on employee classification, emphasizing the need for businesses to assess control and financial aspects to determine worker status.

1. Affordable Care
Act
What you should know about
worker classification

2. What we'll discuss
1. What's a common law employee?
2. Why you should care
3. Counting employees
4. The excise tax adds up
5. IRS scrutiny and guidance
6. Evaluate workers from staffing agencies
7. Weighing the factors
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3. What's a common law
employee?
Under the IRS definition, your common law employees could include your:
• Independent contractors
• Workers from staffing agencies
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INTRODUCTION

4. Why you should care
Both types of workers may be considered common law employees by the
IRS, and if any of them are, you have to add them to your total employee
count in your Affordable Care Act (ACA) calculation.
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5. Count them…
Here's the formula and the threshold:
• Divide the number of full-time employees who are
offered coverage by the total number of full-time
employees, including common law employees who
work full-time.
• To avoid significant excise taxes, your company must
offer health care coverage to 70% of your full-time
employees (working an average of 30 or more hours
per week) in 2015 and 95% afterward.
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6. Or pay the price
If you miscount employees in your ACA
calculation, you'll risk incurring a hefty excise tax.
• The tax is $2,000 per year times the total number
of full-time employees minus the first 80
employees in 2015, and 30 employees after that.
• A company with 250 full-time employees would
pay an annual penalty of $340,000 in 2015 and
$440,000 after 2015.
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7. Scrutiny ahead
Employers misclassify millions of workers as
independent contractors instead of employees,
according to the IRS.
• The agency views worker classification as a major
contributor to the tax gap.
• It has actively audited employment classification — a
trend likely to intensify under the ACA.
• The U.S. Department of Labor will promote
enforcement and share information about cases of
worker misclassification with the IRS.
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8. What the IRS advises
Generally, the IRS considers individuals to be common
law employees if your company is authorized to direct
and control the way they perform their services.
• But it isn’t that simple. The Internal Revenue Manual lists
many factors to use in identifying common law
employees.
• Relevant areas are behavioral control, financial control
and the relationship of the parties.
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9. Weighing the factors
This process represents a facts-and-
circumstance test. That means:
• You have to look at all the factors together
and understand they aren’t equally weighted.
• A factor such as whether your company has
the right to control or direct how the
individual performs the work would be
weighted more heavily, for example.
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10. Workers from staffing agencies
• Analyze these workers even if the staffing
agencies have them on their payroll or
consider them independent contractors.
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Still not clear?
View our other
ACA resources
You may be surprised that workers from staffing
agencies could be your common law employees.

11. An example
If a staffing firm is offering coverage to a
worker at your company and you determine
the worker is your common law employee:
• You can count that worker as if you’ve
offered him or her coverage.
• You can add the person into the numerator
of the formula described previously.
• If the worker accepts the agency's offer, you
must pay the agency a higher fee than you
would have otherwise.
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4. SELECTION

12. Get the whole story
In addition to coverage of work
classification, our ACA resources include
articles on:
• How employers can use their own numbers
to figure whether to offer health coverage or
pay the excise tax
• How to comply with ACA reporting
requirements and identify full-time
employees
Included are formulas, examples and
forms.
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13. We can help
Eddie Adkins
Partner, WNTO
+1 202 521 1565
eddie.adkins@us.gt.com
Andy Mechavich
Director, CBC Employee Benefits Consulting
+1 312 602 8167
andy.mechavich@us.gt.com
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Carl Mowery
Managing Director, CBC Employee
Benefits Consulting
+1 312 602 9147
carl.mowery@us.gt.com
Professionals from our Compensation and Benefits
Consulting (CBC) practice are ready to answer your questions.