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Virginia has decided to get into the worker misclassification game with the passage and implementation of HB 984 on July 1, 2020. Unlike states such as California who decided to adopt the ABC test for determining whether a worker should be classified as an employee or as an Independent Contractor, Virginia decided to explicitly adopt the current IRS Guidelines as the operative test.
We previously spoke about how there might be confusion between the application of the new state rules in California under the ABC test and the IRS Guidelines as to whether an employer would need to offer coverage to the newly categorized employees. Virginia has done away with that ambiguity. In addition, explicitly adopting the IRS guidelines, Virginia created a presumption that all workers for compensation are employees and a private right of action for those workers if their employer knowingly misclassifies them.
While it is still too early to know the scope of the change to Virginia employers, the financial risk for misclassification is real. In addition to the creation of civil liability penalties and lawsuits brought by the individual employees, employers are potentially opening themselves up to significant penalty exposure under the ACA Employer Mandate.
As a reminder to employers in conjunction with the Employer Shared Responsibility Payment (ESRP), the ACA Employer Mandate, organizations 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.
Smart employers should assess their workforce and incorporate any potentially newly classified employees into their ACA compliance process. Employers will need to extend offers of health insurance coverage to more employees, and reporting requirements will grow in complexity. The volume of forms to be processed will increase, along with the costs associated with distributing 1095-C Forms to employees and submitting required ACA information to the IRS annually.
Failing to get this right can result in penalty assessments from the IRS. The agency is currently issuing ACA non-compliance penalty notices in Letter 226J for the 2017 tax year. Employers should seek out expert ACA compliance consultants to prepare for increased ACA compliance as more independent contractors become full-time employees under the ACA.
We’re committed to helping companies reduce risk, avoid penalties, and achieve 100% ACA compliance. For questions about the ACA contact us here.