Staffing agencies that supply companies with professional consultants, such as IT professionals, face a significant problem once the Affordable Care Act (ACA) rolls further into implementation this coming year. Those regulatory changes also will affect companies that utilize those services, and may uproot a long-held relationship between agencies and some of the state’s largest employers.
“The entire staffing industry is going to be reshaped by full implementation of the ACA,” says William F. Hutter, CEO of Sequent.
Smart Business spoke with Hutter about the coming ACA changes and how they will affect staffing agencies and those that use their services.
What is the problem staffing agencies face because of the ACA?
The staffing agencies like to think of these W-2 employees as independent workers/contractors. While they are legally W-2 employees of a staffing agency, they have historically been considered benefit ineligible under ‘carve out’ privileges and have not qualified to receive health benefits from the agency through which they work. The ACA, however, complicates this relationship. In January, those individuals are legally eligible for benefits, which are offered by the staffing agency.
Many firms have long-term contracts with their end-user companies and independent contractors at a pre-determined hourly rate that normally does not account for the cost of health care benefits. The impending change is going to dramatically increase the costs staffing agencies bear and most likely make it difficult for agencies to rebid long-term contracts with large-scale employers.
What are staffing agencies likely to do in the face of these significant changes?
Fundamentally, staffing agencies need to have a real depth of understanding about the law. For instance, some staffing companies believe that only those people working on staff — salespeople, administrators — are considered employees under the terms of the ACA. That’s not the case. When we flip the calendar to 2015, all those independent contractors working in the field who are W-2 employees of that agency are no longer exempt from employer-sponsored benefits. If benefits are not made available to these employees, employers will face potentially heavy fines.
Staffing agencies need to devise a comprehensive strategy to deal with the new conditions because, fines and penalties aside, the costs of providing benefits will be disruptive to their current business.
How does this affect those who typically find work through staffing agencies?
This may not bode well for those working as independent contractors through staffing agencies. Large companies are using some 80 percent of all the professional contractors. And Ohio’s state government likely uses in excess of 2,000 independent contractors supplied by staffing firms. When the ACA drives costs up for staffing agencies that must afford benefits for so many employees, the cost will go up for the end users to help pay for those benefits. That will cause end users to reconsider many of these relationships.
How might end-user companies react?
We’re going to have to take a wait and see attitude to examine whether or how companies change the way they manage contingent staffing. Third-party employers now provide a specialty service to companies because the skill sets contractors bring no longer reside within a single company.
Further, so many things have become complex from a regulatory and compliance standpoint and that has driven the rise of outsourced specialty services. Companies likely can’t go back to the days of employing myriad specialists under one umbrella. That model carries too much overhead. Reducing fixed costs has allowed companies to be more flexible and agile, to expand and shrink with market demands.
How prepared are staffing agencies?
With changes imminent as of January 2015, it’s clear that many staffing agencies, and the end users of those services, are not prepared. It’s a complex subject that’s important for those utilizing this model to understand.
Staffing agencies should seek advice on how to deal with these changes. Don’t try to deny the inevitable. Figure it out now while there’s still time to assemble a plan.
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