ACA, Independent Contractors, and the Staffing Industry

As of September 2014, freelancers now make up about 34% of the American workforce. Even when you consider that some of that 34% are moonlighters (people who have regular full-time jobs and do side gigs in their spare time) and temporary workers, that still leaves a sizable number of independent contractors. The growth of what’s being call the “freelance economy” has been driven in part by the implementation of the Affordable Care Act (ACA). Whether the ACA’s influence in this area was planned or unanticipated, its effects will be felt for some time.

Thanks to the ACA, employees who were tied to jobs in the past because they needed benefits for their families can now go out on their own as independent contractors and still get the healthcare coverage they need. Consequently, the new freelance economy will be both a threat to and an opportunity for staffing agencies.

The threat is pretty clear: your skilled employees (the accountants, engineers, software developers, etc., through which you earn a living by billing your clients for their work) have found a way to provide benefits for their families while making more money and having more flexibility with their time than they would if they were on your payroll (or your clients’ payrolls).

Sounds like bad news for staffing firms, doesn’t it? It doesn’t have to be that way, though. The new economy also brings good news for staffing firms. In order to make the positive possibilities into realities, though, you must do a bit of work.

To seize the opportunity, you’ll need to educate your clients on the benefits of hiring contractors and the pitfalls of doing so themselves; you’ll also need to prepare them for the possibility that using more freelancers can open them up to added scrutiny from various regulatory and oversight organizations (e.g., U.S. Department of Labor, IRS, state agencies dealing with labor and taxes).

Once your clients understand these risks, you can then shift the conversation to moving their contractors onto your payroll. For this service, you’d offer clients a reduced fee (one that’s less than your fee for recruiting and staffing the contractors yourself) and function as a professional employer organization (PEO) that leases the employees back to those companies.  

Not only does this approach make life a little easier for your clients, but it can also make your life a little easier by opening up another route through which you can bring more top talent onto your payroll. At the end of their contracts, for example, some contractors may find that it’s easier to have your staffing firm place them in contract jobs (rather than source jobs on their own). In this case, you’d have the opportunity to place them in more traditional and higher-margin contract positions.

The freelance economy isn’t going to disappear any time in the near future. While it’s here, instead of bemoaning the difficulties it brings, focus instead on its many positives. With the right outlook and careful planning, you can turn lemons into enough lemonade to quench your clients’ thirst—and your own!





Marketing Tip: Use the ACA to Bring in Top Talent

About a year and a half ago, as the federal government prepared for the implementation of the Patient Protection and Affordable Care Act (a.k.a. the ACA or Obamacare), I wrote a post addressing some concerns about how this new law would affect employers, particularly staffing companies:

My recommendation to all consulting and temporary agencies out there is to heed the sage words of Douglas Adams: “Don’t panic.” Yes, there is the potential that you will see a substantial increase in overhead costs. But I am convinced that the long-term gains will outweigh those up-front costs.

Nine months later, right before the ACA website launched and signups began, I held the same position:

Although temp agencies may see some cost increases related to paying those benefits for their full-time employees, I’m confident that those increases will be mitigated by having a higher-caliber candidate pool as highly skilled and sought-after workers who had previously held out only for permanent positions begin considering contingent jobs as viable options.

And here we are, well over half a year into the ACA implementation. Although it had a somewhat troubled rollout at first, the ACA is by most accounts a success. So far, eight million people have used it to obtain health insurance. And so far, the sky hasn’t fallen on the staffing industry (or on the rest of the economy).

In fact, the economy is on an upswing, and it even looks as though the country has finally clawed its way out the recession. Hiring is up—and staffers have a stronger candidate pool to search, thanks in part to the ACA.

Now that they’re no longer bound by the need to find a full-time, permanent job with health-care benefits, highly skilled workers are more open than ever to accepting temporary work assignments. And now that they’re no longer bound by the need to offer health-care benefits, staffing agencies can appeal more strongly to top talent (and can enjoy higher retention rates, too, because those employees won’t necessarily jump ship at the first sign of a permanent job-with-benefits).

In your marketing efforts, your company needs to be playing up the ACA angle. When you recruit top talent, remind them of the great flexibility they have now that health insurance coverage doesn’t have to be dependent on holding particular jobs. Your company and those highly skilled workers have a lot to offer each other now that health insurance isn’t coming between you.

If your company isn’t already pursuing these ACA enrollees, now’s the time to do so! Strike while the iron is hot—and get out ahead of your competitors!





Another Great Business Lesson from Obamacare and Follow Through!

The Obamacare rollout continues to teach excellent lessons on how not to implement a large complex program. Since it went live on October 1, the federal government’s new website has been plagued with problems. Many people have had trouble finding the information they need about new health insurance options under the Patient Protection and Affordable Care Act; in some cases, users haven’t been able to access at all. The website can’t handle the huge influx of traffic (in just over three weeks, it’s seen over 19 million visitors and counting!), and its backend code is riddled with errors and bugs that have created headaches galore for users.

How did this happen? In the wake of the site’s launch, there’s been a lot of fingerpointing from the media, program administrators, politicians, and the general public. As full investigations get under way, it’s becoming increasingly obvious that’s problems are the result of lots of unconnected contractors working on one giant piece of software separately and without strong guidance:

[A] total of 47 different contractors worked on building, each tackling different pieces of the site’s functionality. The result: a fragmented system, with no easy way to figure out who messed up, where. (Adam Bluestein, “Business Lessons From The Botched Rollout of,” Inc.)

Clearly, the people in charge of this project forget that “keep it simple” is usually the best solution. When multiple parties are trying to build something with many different tools—and they don’t all have a clear idea of what the result is supposed to be—well, it’s no wonder that website has a few problems.

In the article quoted above, Adam Bluestein writes specifically about how tech companies can learn from the rollout. But this scenario yields business lessons for pretty much any other industry, too.

Staffing companies in particular can take a page from the “what not to do” handbook of the launch. For example, many companies to have a strict division of labor: sales reps secure an order, then pass the job specs on to recruiters for fulfillment. Once the handoff is complete, many sales reps consider that job closed and move on to the next client or prospect.

The problem with this approach, however, is that salespeople who don’t follow a deal through to the end miss opportunities for quality control. Because the sales rep is the one who worked directly with the client, she’s the one who has the best knowledge about what the client wants. She’s responsible for communicating all the specs to the recruiter—and she’s in a unique position to know whether what the recruiter is doing matches up to what the client expects.

With tons of job details to keep track of during the sales-recruitment-hire process, it’s easy for something to fall by the wayside. Fortunately, it’s also easy to make sure that doesn’t happen.

Sales reps don’t need to micromanage recruiters, but they do need to remain vested in the candidate-search process to make sure their clients get what they need. Recruitment entails a different skill set than sales, and salespeople should rely on recruiters’ expertise in this domain. So sales reps should sit back and let recruiters take over once the job specs have been passed on. But sales reps should also lean forward every once in a while and peek over the recruiters’ shoulders, just to make sure that all the ducks are lining up in a row as they should.

Over the next several months, as the website gets analyzed (and, hopefully, fixed!), I’m sure we’ll see plenty of articles about what the business community can learn from its launch. This cautionary tale already has one clear lesson for staffers, though: if you make a sale, make sure you follow that job until its completion so you can ensure the quality of the placement.




The Affordable Care Act and Temporary Staffing: Looking Ahead at Looking Back

A few months ago, I wrote a post about how new rules mandated by the Affordable Care Act (health-care reform) could help the staffing industry (“Health-care Reforms’ Silver Lining for the Staffing Industry”). I pointed out that as temporary staffing firms start offering health-care benefits to their employees, those firms will likely see more high-quality applicants—and more stability in hires and placements—in their future. 

Since that post was published, the American Staffing Association (ASA) has been actively engaged in efforts to explain to Affordable Care Act (ACA) officials the staffing industry’s unique business model and how the rules will affect the industry in its current form. Two guidelines of particular interest to the staffing industry have emerged from these conversations: 

  1. Twelve-month look-back period. Companies can select a look-back period of up to twelve months to determine if employees should be classified as full time (averaging thirty hours or more per week) or part time (averaging fewer than thirty hours per week). For the staffing industry, a twelve-month look-back period should yield significantly fewer benefits-eligible employees than the originally proposed three-month look-back period.
  2. “Variable-hour” employee category. Companies have the option of designating new staff as “variable hour” employees. (An employee in this category is defined by the IRS as one who, at the time of hire, is not “reasonably expected to work on average at least thirty hours per week.”) Many temporary positions start as out full time but have short durations (typically only a few months), however, and in comments filed March 18 on the ACA employee regulations, the ASA offered the following recommendation:

We propose that the final regulations establish a safe harbor for employers based on the annual turnover percentage of the employees they employ. For example, under this safe harbor, a temporary employee hired to perform services for a staffing agency client would be entitled to a rebuttable presumption of variable hour status if the annual turnover of the staffing agency’s work force in the calendar year immediately preceding the employee’s start date was 100% or higher. The safe harbor would apply to each temporary staffing agency that is an “applicable large employer member” within the meaning of the proposed regulations.

The analysts at the Staffing Stream posted a great explanation of these guidelines’ impact on the staffing industry. In short, the ASA recommendations would permit temporary staffing agencies with 100% annual turnover to categorize as variable any staff “who, on their start date, is reasonably expected to work full time for at least six consecutive months.”

Although the rules for ACA implementation have not yet been finalized, I am confident that the final version will successfully dispel the doomsday scenarios over which many staffing company owners have been losing sleep since the ACA became law. Even though the ACA requirements won’t be nearly as troublesome as many feared, however, it would be prudent for staffing firms to start evaluating their current practices now in light of anticipated changes.

Keeping in mind some of the issues I raised in my earlier post on this topic, don’t underestimate the positive effects of offering benefits to all employees—regardless of whether ACA guidelines require you to do so. Benefits are a proven attraction for potential workers, and the possibility of receiving health-care benefits at your temporary staffing firm can lure high-quality employees who would otherwise consider only permanent, benefits-carrying positions.

Benefits also serve as a powerful incentive for employees to stay put in their jobs. Consider a scenario in which career temps stay with your firm for many years and move from assignment to assignment, making your customers happy along the way. Higher retention rates lead to increased stability for all involved parties: employees, your company, and your clients. In short, everyone wins. So take the time to explore this option, too, as your company prepares for the full rollout of the new ACA guidelines.