HCW Benefits Blog

Contributor:
Joy Binkley, Principal, Health & Welfare Benefits Consultant
Hill, Chesson & Woody

The Internal Revenue Service (IRS) has announced a new, voluntary correction program that allows employers to reclassify employees who are currently misclassified as 1099 “independent contractors” when they should actually be reported as “W-2 paid” employees. Known as the Voluntary Classification Settlement Program (VCSP), employers who are not currently being examined by the IRS are allowed to eliminate years of past employment tax liabilities for “pennies on the dollar,” an amount equaling just greater than one percent of the wages paid to the reclassified workers for the past year.

For health and welfare benefits, employers will want to consider the compliance and contractual impacts to their plan. From a compliance perspective, it all starts with control groups and eligible employees. This impacts traditional regulatory issues such as COBRA, HIPAA, ERISA, FMLA and discrimination testing. When you add in the additional impact of healthcare reform, employers will need to consider the implications on provisions that apply to varying sizes of groups, such as “Pay or Play,” tax credits and medical loss ratios.

Of course, there is also the issue of repercussions that might be felt from employees that were previously misclassified and, as a result, were denied benefits.

From a contractual perspective, employers should be aware of the requirements the insurers or reinsurers impose. This might mean a re-rating of coverage if there are material adjustments to the covered population. With clearer definitions of employees and control groups, employers may want to tighten up their eligibility monitoring to prohibit unreported carve outs. As can be seen, all of this impacts more than just tax withholdings.

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