BENEFITS LUNCH BREAK WEBINAR SERIES - July 21, 2021 - Miller Johnson

BENEFITS LUNCH BREAK
       WEBINAR SERIES
          July 21, 2021

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              Tripp VanderWal
              Jeff Gray

 © 2021 Miller Johnson. All rights reserved.       1

The materials and information have been prepared for
informational purposes only. This is not legal advice, nor
intended to create or constitute a lawyer-client relationship.
Before acting on the basis of any information or material,
readers who have specific questions or problems should
consult their lawyer.

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 Which entity, the temporary staffing/leasing agency or the
  recipient employer, is the common law employer?
 The IRC relies on the “common law agency” test, which
  generally looks to the entity that has the right to control the
  worker in both the result the worker is to accomplish and
  the means by which the result is to be accomplished
  considering the following factors:
   Behavioral control
   Financial control
   Relationship of the organization and the worker

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 Behavioral control considers which entity has the right to
 direct and control how the worker does the task for which
 the worker is hired, including
  Instructions. Which entity gives (or has the right to give) instructions
   to the work as to when, where, and how the work is done
  Training. Which entity trains the worker

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 Financial control considers which entity has the right to
 control the business aspects of the worker’s job, including:
  The extent to which the worker has unreimbursed business expenses
  The extent of the worker’s investment (e.g., facilities, tools, etc.)
  The extent to which the worker makes the worker’s services available
   to relevant market
  The extent to which the worker is paid on a periodic basis (hourly or
   weekly), or is paid a flat fee or on a time-and-materials basis
  The extent to which the worker can realize a profit or loss from the
   performance of services

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 Relationship considers the nature of the relationship
 between the worker and the entity, including:
  How any contract describes the relationship the parties intended to
   create
  Whether the entity provides the worker with employee benefits
  Whether the worker’s engagement is expected to be indefinite or for
   a specific project or time period
  Whether the worker’s services are a key aspect of the entity’s regular
   business activity

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 Most employers exclude from eligibility in their health and
  welfare benefits workers who are not on the employer’s
  payroll (e.g., temporary and leased employees)
 Covering employees who are not common law employees of
  the employer may create a “multiple employer welfare
  arrangement” or MEWA

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 The ACA prohibits waiting periods in excess of 90 days
 A waiting period is defined as a period that must pass before
  an individual who is otherwise eligible to enroll under the
  terms of an employer’s group health plan
 If an employer excludes employees who are not on their
  payroll, it is permissible to impose a waiting period on
  temporary or leased employees who are hired as employees
  by the employer
   This may, however, result in a pay or play penalty under the Employer
   Mandate

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 “[I]n the typical case in which the [PEO] or staffing firm is not
 the common law employer of the individual”
  If a temporary or leased employee is the common law employee of
   the recipient organization, the recipient organization is required to
   offer the employee coverage that is of minimum value and affordable
   to avoid a penalty under the Employer Mandate
  An offer of coverage by the temporary staffing firm or leasing agency
   will be deemed to be an offer of coverage by the recipient
   organization if the fee charged by the temporary staffing firm/leasing
   agency is “higher” for employees who are enrolled in the coverage
   offered by the temporary staffing firm/leasing agency

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 Forms 1095-C
  The common law employer must complete the Form 1095-C on behalf
  of its common law employees who are full-time, this includes
  temporary and leased employees, even if the temporary staffing
  firm/leasing agency offers these employees coverage
   Most temporary staffing firms/leasing agencies will complete the Forms
    1095-C as if temporary or leased employees are its common law
    employees
   The IRS has not shown much audit activity in this area

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 Agency workers potentially affect:
  Service credit for eligibility
  Service credit for vesting
  Availability of distributions
  Minimum coverage testing

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 Special rules apply to “leased employees.” A “leased
 employee” is any worker who:
  Is not the “service recipient’s” common law employee;
  Provides services under an agreement between the recipient and the
   leasing organization (temp agency);
  Has provided services to the recipient on a “substantially full-time
   basis” for at least one year; and
  Works under the primary direction and control of the recipient

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 “Leased employees” are essentially deemed to be the service
  recipient’s common law employees under the retirement plan
 Exception
   The leasing organization provides a money purchase pension plan
   benefit with at least a 10% contribution, immediate vesting, and the
   leased employees are not more than 20% of the recipient’s non-highly
   compensated workforce. (Very rare.)

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 Like any other reasonable employment classification (e.g.,
  employees of division X), leased employees may be excluded
  from participation in the plan
 Exclusion must be stated in the plan document
   But excluding “leased employees” as defined in the Code is an inartful
   way of excluding agency workers. What if they are misclassified?
 Leased employees must be included in minimum coverage
 testing
  Negative impact – can result in coverage testing failure

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 So-called “lease to hire” rule
 Any leased employee who is hired by the service recipient as
 an employee is entitled to credit for service performed while
 a leased employee
  But the “one year of service” requirement for “leased employee” status
   is ignored
  Example: Hired 18 months after being assigned as a temporary
   worker – full 18 months of service credit is required, not just 6
   months
  What if the worker is hired before becoming a “leased employee”?

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 A transfer to leased employment is not a distributable event
  Example: Engineer’s position eliminated during reduction in force is
   later deemed to be important to ongoing project and management
   wants her to “stay on” through a staffing agency until the project is
   complete
  No “severance from employment” has occurred if the employee
   transfers to a leasing agency
  May require manual intervention in the payroll system to prevent the
   individual from taking a distribution from the 401(k) plan (unless
   otherwise eligible for an in-service distribution)

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 Key point is that NQDC plans often trigger payment in
 connection with a “separation from service” under Section
 409A of the Code
  Whether a separation from service has occurred is completely
   dependent upon the employee’s service level after the “retirement” or
   separation – whether through a temporary agency or as an
   independent contractor
  “Default” rule is that a separation from service is “presumed” to occur
   if the parties reasonably anticipate that the individual will provide no
   more than 20% of the employee’s average prior service level over the
   past 36 months

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                 Tripp VanderWal                                       Jeff Gray
                    616.831.1796                                       616.831.1777
             vanderwalt@millerjohnson.com                         grayj@millerjohnson.com

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