For small companies in Massachusetts that don’t offer health insurance or have part-time, uninsured workers, it may be easier to turn employees into contract workers than deal with the administrative burden imposed by the state’s new law, staffing professionals say. The law requires that employers make health insurance available to employees, either under their own plan or through a pool created by the state.
"Clearly, if you are a 10-person company and you want to hire the eleventh, you might want to get that person from a temp agency," says Michael Connors, CFO of Professional Staffing Group in Boston, which will issue 5,000 W2s this year on behalf of clients.
Staffing firms or professional employer organizations are considered the employer of record by the state because they issue an employee’s W2 tax form on behalf of their client. Under the new law, they will be responsible for making health insurance accessible to those employees who work at least 30 days for the company.
Employers must also subsidize some portion of the premium, according to the legislation that was signed into law by Republican Gov. Mitt Romney on April 12. Businesses that don’t make a "fair and reasonable" premium contribution—the meaning of which will be determined by state regulators—will likely have to pay a $295 fee per employee annually. This fee was vetoed by Romney but will probably be overridden by the Democratic-controlled Legislature.
For a company that does not offer its employees health coverage or does not want to deal with administrative hurdles of compliance, using a PEO makes sense. Eight out of 10 PEOs nationally offer some type of health care plan, according to the Edie Clark, a spokeswoman for the National Association of Professional Employer Organizations, whose 350 members represent 100,000 small to midsize businesses nationally.
But many PEOs do not contribute to the premium. This will change if they want to continue to do business in Massachusetts.
Genesis Consolidated Services, based in Burlington, Massachusetts, offers 20 different health care options but does not subsidize the plans’ premiums. Monette Galello, vice president for human resources and risk management at Genesis, says she believes the Massachusetts law will boost companies like Genesis, at least in the short run. But, she adds, any increase in the cost of complying with the new law will be passed on to the client.
Companies and state legislators alike hope that universal coverage and higher Medicaid reimbursement rates for doctors and hospitals will bring the cost of insurance down for everyone. But until the law takes effect in January, that hope remains a hypothesis.
"The biggest question mark," says Jon Hurst, president of the Retailers Association of Massachusetts, "is whether there will be bottom-line savings for employers."
That concern, especially for staffing and employer organizations that have a national reach, will grow if variations of the Massachusetts law take form in statehouses across the country.
"This is a negative for us because we’re in 50 states, and if 50 states come up with 50 different rules, this will make life difficult for us," says Doug Goin, CFO of Orlando, Florida-based ZeroChaos, a provider of skilled, short-term workers for the tech industry. "It will become a real employer’s nightmare."