‘Obamacare-Dodgers’ Help Contracting Outpace Direct Hire

The Affordable Care Act (ACA), the healthcare reform law often referred to as Obamacare, is being credited for a spike in contract staffing, which is at its highest level since 2006 and is outpacing traditional, direct hiring.

The Bureau of Labor statistics reported that 2,679,800 workers were employed in contract/temporary positions in May, inching ever closer to the all-time record of 2,767,300 contractors working in October 2006, according to ere.net.

Moreover, year-over-year contract staffing growth was 7.5%, which is five times the growth of the overall economy’s jobs increase of just 1.56%.  The contractor penetration rate (the percent of workers who are contractors) has hit 1.98%, close to all-time high of 2.03%.

Investors Business Daily is pinning some of this contract staffing growth on what are being called ‘Obamacare-Dodgers’ — employers trying to get around the employer mandate portion of the ACA by utilizing contractors instead of direct hires.  The employer mandate, which begins in 2015, will require employers with 50 or more employees to provide healthcare insurance to their employees or pay a per-employee penalty.

Utilizing contractors who are W-2 employees of a contract staffing back-office is a legitimate strategy for reducing or eliminating an employer’s responsibilities under the employer mandate.  Basically, companies are outsourcing the employer responsibilities to the back-office.

Recruiter Joell Iskander of Select Hire Resource is seeing more of her clients go the contract staffing route as a result of Obamacare.

“When clients utilize contractors, benefits and other employer issues are no longer their problem,” Iskander said.  “If they put someone on as a contractor, it’s something the recruiting firm or back-office handles.”

This is a safer alternative to another popular Obamacare avoidance strategy — classifying workers as 1099 Independent Contractors.  Companies may use this technique to reduce their number of employees that must be counted to determine if they fall under the employer mandate.  However, simply calling a worker an independent contractor doesn’t make it so.

They must meet the IRS guidelines for independent contractors.  The Obama administration has been very diligent in targeting companies that misclassify W-2 employees as 1099 independent contractors because the proper employer taxes are not being paid on those individuals.  This is not an issue when companies utilize contractors employed through a back-office because that back-office classifies the workers as W-2 employees, pays the employer share of payroll taxes, and takes responsibility for Obamacare compliance.

The continued growth of contract staffing in light of Obamacare presents a huge opportunity for recruiters willing to place W-2 contractors.  Unfortunately, some recruiters will pass up this opportunity because they are reluctant to delve into contract staffing due to the misconception that it is more difficult than direct hire.

But contract staffing does not have to be any more difficult than direct hire placements when you utilize a contract staffing back-office.  The back-office becomes the legal W-2 employer of the contractors and handles all of the financial, administrative, and legal details of the contract placement.  This leaves you to handle the traditional recruitment tasks: get the job order, find the candidate, and negotiate the rates.

Additional placements are yours for the taking IF you are willing to stretch a little outside of your comfort zone.  Not only can you increase your sales, but you can also become a valuable partner by providing clients with a viable solution to one of the most challenging staffing issues they’re facing.

(Editor’s note: this article is for informational purposes only and should NOT be considered legal advice.)