Independent Contractor Misclassification Penalties under the Affordable Care Act

By Castillo, Mario K. | Houston Journal of International Law, Spring 2014 | Go to article overview

Independent Contractor Misclassification Penalties under the Affordable Care Act


Castillo, Mario K., Houston Journal of International Law


  I. BACKGROUND ON EMPLOYER MANDATE PENALTIES  II. BACKGROUND ON INDEPENDENT CONTRACTOR      CLASSIFICATION III. INDEPENDENT CONTRACTORS AND THE AFFORDABLE      CARE ACT      A. Independent Contractors and the Initial ALE         Determination      B. Independent Contractors and Complex Corporate         Structures      C. Appropriately Staffing Independent Contractors      D. The Employer Mandate's Strong Penalty and         Independent Contractors      E. The Employer Mandate's Weak Penalty and         Independent Contractors  IV. CONCLUSION 

President Barack Obama signed the Patient Protection and Affordable Care Act ("ACA") into law on March 23, 2010. (1) Today, more than three years later, the ACA remains one of the most politically divisive issues currently facing our nation. (2) It is so divisive in fact that it led to the first federal government shutdown in seventeen years. (3) Moreover, healthcare management disagreements also caused, in part, the 1996 federal government shut down. (4)

The present controversy in Congress is described as follows: The ACA's centerpiece is the creation of an individual responsibility to carry a particular level of medical insurance called minimum essential coverage or pay a financial penalty (the "individual mandate"). (5) Conversely, certain employers have a parallel responsibility to offer a particular level of medical insurance, a qualified healthcare plan, to full-time employees or also pay a financial penalty ("the employer mandate"). (6) As originally enacted, both the individual and employer mandates were set to begin on January 1, 2014. (7) This changed on July 2, 2013, when the Obama Administration announced that the employer mandate penalties and reporting requirements would be delayed until January 1, 2015. (8) Republicans also wanted the individual mandate to be delayed until January 1, 2015. (9) This is the controversy in the U.S. Congress that led our nation's federal government to shut down this past fall. While the date by which individuals had to purchase coverage was extended for a few days, (10) the individual mandate nevertheless took effect on January 1, 2014, as scheduled.

The employer mandate delay was received with a sigh of relief by the employer community. (11) Nevertheless, many employers are still not taking the necessary steps to both remain competitive in their particular labor markets, and to avoid government audits, investigations and lawsuits. Every company is unique. No company has the same owners, the same employees, or faces the same challenges with the benefit of the same resources. Notwithstanding these differences, some industry wide guidance is available for energy companies hoping to successfully navigate the ACA and remain competitive for labor. (12)

The media's coverage of the employer mandate has almost exclusively restricted itself to how that mandate will affect low-wage, unskilled labor markets. (13) Such coverage does little to aid most energy corridor employers who, for the most part, do not operate out of low-wage, unskilled labor pools. (14) How such employers react to the employer mandate should be completely different from how an employer in the energy industry reacts. An appropriate employer reaction accounts not only for what the law says, but also what labor marketplaces dictate.

Some reports indicate that while overall employment has increased roughly one percent over the last few years, oil and gas employment has increased at a rate of forty percent over the same period. (15) However, the labor supply is not keeping up with employer demand. 16 As it relates to their workforces, oil and gas employers are largely worried about a labor shortage. (17) These employer concerns are evidenced by increased salaries, bonuses, and increases in other fringe benefits offered to employees. (18)

While some employers may be taking steps to skirt offering employees healthcare benefits, the same response from an oil and gas employer could be disastrous given the current labor marketplace in which the latter competes for labor.

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Independent Contractor Misclassification Penalties under the Affordable Care Act
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