"Obamacare-Dodgers" Help Contract Hiring 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 kicks in in 2014, 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 harder 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-2employer of the contractors and handles all 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 just willing to stretch a little outside your comfort zone.  Not only can you increase your sales, you can also become a valuable partner by providing clients with a viable solution to one of the most challenging staffing issues they are facing.

This article is for informational purposes only and should not be considered legal advice.

Debbie Fledderjohann is the President of Top Echelon Contracting, Inc.

Views: 268

Comment by Barbara Goldman on June 21, 2013 at 10:15am

Good article, however; it is also true that when the economy is coming out of a recession, there is always increased demand for temporary hires. Its a great time to be in contract staffing. BTW, I used your service, and would recommend to anyone :)

Comment by Debbie Fledderjohann on June 21, 2013 at 10:43am

Hi, Barbara. You are absolutely correct, contract staffing is definitely more popular during an economic recovery, so there is no doubt that is also playing into the spike. We have also been hearing from staffing experts and recruiters that there seems to be more of a permanent shift to contract staffing for many employers due to a number of factors , including continued economic uncertainty, the need to remain flexible, candidate preferences, and Obamacare.  If you are interested, you can read more about it in our newsletter at https://secure.topecheloncontracting.com/recruiters/Newsletter/thir... Thanks so much for your comment and for utilizing TEC. We appreciate your kind compliment.

Comment by Stephen Nehez, Jr. on June 21, 2013 at 10:10pm

As a Midwesterner, I'm always fascinated with visiting any of the oceans and the enormous energy it represents.  Even at my old age, I can't resist stepping onto the beach and hitting the chilling water with my feet.  Forcing myself into towards the big blue, it doesn't take long to be waist deep and then up to your neck in the the salty universe. 

Nothing can stop the incoming waves.  And I imagine this nightmare of Obamacare is going to feel the same way.  Impossible to tolerate and manage. 

I guess we must make hay while we can as the author recommends.

- Steve


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