Former independent contractors — now employees — ‘count’ under the ACA and FMLA
It’s been more than six weeks since a Department of Labor rule making it harder to classify workers as independent contractors went into effect.
Under the rule, employers must use a multifactor analysis to determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA).
A shift in how workers are classified might pose new challenges for employers when it comes to employee benefits.
Employees count for health care
The possible addition of former independent contractors, now classified as employees, to a company’s payroll could have implications under the Affordable Care Act (ACA).
If more workers are now classified as ‘employees,’ employers will count those individuals toward the total employees for group health plans.
This would have an especially significant impact on smaller businesses previously not bound by ACA requirements.
Under the ACA, employers with 50 or more full-time employees (or the equivalent in part-time employees) must provide health insurance to at least 95 percent of their full-time staff. These companies are called Applicable Large Employers (ALEs).
Failure to provide employee benefits under ACA may result in these penalties for ALEs:
- Penalty A applies to employers failing to offer minimum essential coverage to at least 95 percent of their full-time employees and dependents. In the calendar year 2024, ACA penalties are $2,970 per benefit eligible employee for Penalty A.
- Penalty B affects employers that offer unaffordable coverage that doesn’t meet minimum value. A plan provides minimum value if it has an actuarial value of at least 60 percent, meaning the plan pays for at least 60 percent of covered benefits. In calendar year 2024 ACA penalties are $4,460 per employee for Penalty B.
Employees count for leave laws
Reclassification could affect company leave policies as well, including the need to cover more workers newly classified as employees under the federal Family and Medical Leave Act (FMLA). The FMLA provides up to 12 weeks of unpaid leave for a new child, or to take care of one’s own medical needs or a family member’s for qualifying reasons.
More private employers might be covered by the law, since it applies to private employers with 50 or more employees in the U.S.
There are also potential benefits changes at the state level, where a patchwork of state and local laws governs both unpaid and paid sick leave and family leave, leaving the door open for newly classified employees to trigger coverage.
The rule is being challenged
The new worker classification rule is facing lawsuits alleging the regulation is illegal. In the meantime, however, the rule has been in effect since March 11 and employers should ensure they’re following all federal, state, and local employment laws.
Key to remember: A new rule that went into effect this year might affect employers when it comes to the benefits they provide, since former independent contractors might now “count” as employees.
