Prop 22 has Significant Implications on ACA Healthcare Benefits
2 minute read:
With everyone’s attention focused on the results of the presidential election, folks may not realize that California Prop 22 will pass. As of November 6, the status is 76% reporting with 58.4% of the vote, according to the Associated Press. Prop 22 has significant implications for gig economy drivers. Not least among these implications are healthcare benefits for app-based drivers.
As we have previously written about gig economy workers, like those who work for Uber and Lyft, in California and other states, the issue of misclassification between employee and independent contractor looms large. California and New Jersey both recently adapted the ABC test for determining whether a worker can appropriately be classified as an independent contractor or if they must be classified as an employee, as well as stiff penalties for non-compliance. We discuss in detail the impacts of the ABC test on worker classification here. Essentially, the ABC test makes it impractical, if not impossible, for gig economy companies to continue to classify their workers as independent contractors while continuing to operate in the same manner.
With the apparently inevitable passage of Prop 22, a third category materializes for app-based drivers. In this separate third category, the app-based driver is not an employee nor a typical independent contractor. This has significant implications, not least of which includes the impact on the ACA Employer Mandate.
Under the ACA Employer Mandate, only full-time employees are required to be offered healthcare coverage. Of course, that requirement only applies to coverage for employees. Specifically, as a reminder to employers in conjunction with the Employer Shared Responsibility Payment (ESRP), the ACA Employer Mandate, employers with 50 or more full-time employees and full-time equivalent employees are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to Internal Revenue Code (IRC) Section 4980H penalties. The healthcare law defines full-time employees as workers who average 30 hours of work a week or 130 hours a month. Failing to get this right can result in penalty assessments from the IRS.
With Prop 22, app-based gig economy companies don’t have to offer health coverage to their drivers. Instead, these gig economy companies must provide healthcare subsidies, which are “consistent with the average contributions required under the [ACA].” The structure of which workers get the subsidy is different from that under the Employer Mandate. Rather than a requirement to offer healthcare coverage for those who work at least on average 30 hours or more per week as required under the ACA, under Prop 22, the requirement to provide the subsidy depends on the average hours per quarter: (a) 100% of the average ACA contribution for applicable Covered California premiums for each month in a quarter for those who average at least 25 hours or more in a calendar quarter and (b) 50% for 15 to less than 25 hours. Additionally, there are certain reporting requirements to be furnished to the app-based driver for each earnings period.
To learn more about ACA compliance in 2021, click here.
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