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ACA Pay or Play Applicability to Independent Contractors

  • October 22, 2017
  • Brian Gilmore
  • Compliance
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Question:  How are independent contractors handled for reporting under ACA?  They are not offered benefits. 

Compliance Team Response:   

The ACA pay or play rules apply only to an employer’s common-law employees.  There is no obligation (or even ability to) offer coverage to properly classified independent contractors who are paid by Form 1099 (because these workers are not considered your employees).

On a side note, this is another reason that there is a lot riding on the proper classification of workers as a common law employee or independent contractor.  A worker who is incorrectly classified as an independent contractor could be subsequently retroactively reclassified as a common law employee.  In that case, the reclassified workers could trigger retroactive pay or play penalties.  I’ve written about this concern here: https://theabdteam.com/blog/potential-aca-implications-of-the-california-labor-commissioners-uber-driver-ruling/

The IRS has a nice summary of the independent contractor vs. common-law employee analysis here: https://www.irs.gov/taxtopics/tc762.html

Regulations:

Treas. Reg. §54.4980H-1(a)(15):

(15) Employee. The term employee means an individual who is an employee under the common-law standard. See § 31.3401(c)-1(b). For purposes of this paragraph (a)(15), a leased employee (as defined in section 414(n)(2)), a sole proprietor, a partner in a partnership, a 2-percent S corporation shareholder, or a worker described in section 3508 is not an employee.

 

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship.  Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).

Brian Gilmore

Brian Gilmore

Brian Gilmore is the Lead Benefits Counsel at ABD. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law.
The information provided is of a general nature and an educational resource. It is not intended to provide advice or address the situation of any particular individual or entity. Any recipient shall be responsible for the use to which it puts this document. ABD shall have no liability for the information provided. While care has been taken to produce this document, ABD does not warrant, represent or guarantee the completeness, accuracy, adequacy, or fitness with respect to the information contained in this document. The information provided does not reflect new circumstances, or additional regulatory and legal changes. The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided.
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