ACA Compliance and Gig Workers

As the popularity of the gig-economy increases, the faces of the American workforce continue to change. Certain state and local governments have responded to the rapid growth of the gig-economy by pushing for the extension of long-term benefits to flex workers. Some jurisdictions have also pursued regulations that treat gig workers as employees under certain circumstances.

This is an important distinction, as employers have substantially more responsibilities to employees compared to independent contractors. Legislation that treats gig workers as employees could pose significant and unexpected challenges for employers. One of those challenges may involve ACA compliance and gig workers.

Employment Status and ACA Requirements

Federal labor laws impose substantially more obligations on business owners for employees compared to independent contractors. For example, an employer must deal with tax withholdings, and meet Affordable Care Act (ACA) compliance, and keep track of their employees’ hours to comply with overtime laws. The ACA requires companies with 50 or more full-time employees to offer Minimum Essential Coverage to most of their workforce.

With that in mind, legislation that reclassifies gig workers as employees could drastically alter the responsibilities of many employers. Businesses may suddenly have to provide health insurance options to additional workers. The cost of ACA compliance could be extreme in some cases.

Legislation that Distinguishes Independent Contracts from Employees

Until now, only a few states have adopted legislation that treats gig workers and independent contractors as employees for the purpose of long-term benefits. While the IRS has developed guidelines for identifying independent contractors, states like New Jersey and California have created their own evaluation standards, referred to as the ABC Test.

Under the ABC Test, a worker must meet two criteria to qualify as an independent contractor. First, an individual must perform their work without their employer’s direction and control. Second, they must perform a task that is outside the company’s scope of business. For example, a bakery hiring a freelance IT specialist would likely meet this standard.

The status of certain gig workers in California is becoming even more complex. In 2020, the state passed a ballot initiative that reclassified rideshare drivers as independent contractors. This change was heralded by rideshare companies as a necessary step for them to continue operating in California. The initiative removed employee status for these gig workers and the protections that come with that status. However, it also provided for certain long-term benefits similar to those under the ACA.

To learn more about ACA compliance and gig workers, contact HapiGig directly and speak with one of our team members. We can help you understand a business’s obligation to comply with the Affordable Care Act and what that means for flex workers.