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The ACA, Independent Contractors and You

Original publish date: October 6, 2014

As we all know by now, under the Affordable Care Act (ACA) employer mandate, an applicable large employer that does not offer affordable minimum value group health coverage to its full-time employees (and their children up to age 26) may be subject to employer-shared responsibility penalties under Internal Revenue Code §4980H. Whether an employer is an “applicable large employer” depends upon its number of full-time (and full-time equivalent) employees.

Due to these provisions, the use of independent contractors can become an even stickier wicket than before. Some production companies classify workers as “independent contractors,” “consultants,” “contingent workers,” “freelancers,” or other similar terms. These would include those workers working through a “loan-out” company (Corporations, LLCs, etc.).

Employees (those receiving W-2s) are subject to wage and hour requirements, federal and state income tax withholding, FICA withholding, employment taxes, and, most recently, the ACA employer mandate. There are no such costs for independent contractors, such as those working through loan-outs, as the loan-out is the employer of the worker, not the production company.

It is important for employers to understand the differences between an employee and an independent contractor, especially in today’s ACA climate. In addition to potential ACA penalties, significant tax consequences result if a worker is misclassified as an independent contractor and is subsequently reclassified as an employee, including: liability for withholding taxes, interest and penalties, and the potential disqualification of employee benefit plans. Insurance coverage can be offered to those workers working through a loan-out, and ACA penalties may be avoided; however, as mentioned above, employers may still be subject to other tax consequences should the IRS determine the worker was misclassified.

It’s important for every employer to review the common-law employee rules, makes sure it has properly identified all of its common law employees as employees. More information is available on the IRS website here.

Media Services’ ACA Benefits Eligibility reports for the purposes of tracking hours has mechanisms built in to include or exclude loan-outs, based on the production company’s preference. Additionally, our insurance plans allow the participation for those workers working through loan-outs to enroll in their chosen plan.

Learn more about our ACA-compliant health plans with the lowest premiums in the industry.

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