Andrew Braswell, a research analyst with the Mountain View, Calif.-based consulting group Staffing Industry Analysts, raised the issue about the common-law employer designation in an article last month. Braswell noted the "common law" language while reviewing the final rule on the employer mandate, formally known as the Shared Responsibility for Employers provision of the PPACA.

The crux of the problem comes in one paragraph where the rule says, "In the typical case in which the professional employer organization or staffing firm is not the common law employer."

Staffing industry experts say they find the "typical case" wording troublesome.

"The central question is, who will be considered the common-law employer, the staffing firm or the client company?" Braswell said.

He added that the wording of the regulation could be read as suggesting that the client business, rather than the staffing company, would be considered the common-law employer by the IRS. "That turns on its head the common thinking about how temporary workers are treated," Braswell said.

A complex industry

The confusion affects an industry that employs nearly 3 million workers every day.

Staffing firms provide contract workers for highly skilled areas such as health care and IT services, but also for basic clerical, manufacturing and customer-service positions. The industry has to juggle a workforce that is constantly changing as well as industries whose labor needs may also fluctuate frequently.

According to Braswell and other analysts, there is the possibility that the IRS rule is intended to apply only to arrangements involving professional employer organizations, or PEOs, which traditionally have provided payroll, human resources, and other administrative services to small- or medium-sized businesses.

David Schek, president of Leaststaff.com and a consultant who works with PEOs and staffing companies, said he agrees the PPACA regulations can be confusing. "The employment world has just become much more complicated in every area, and that's a problem with these laws that try to take big steps, such as the ACA," he said.

However, he added that, in his reading of the matter, staffing companies will continued to be considered the common-law employer of temporary workers.

He said that PEOs, although they have a "co-employment relationship," will simply be seen as providing services. "As I understand the ACA rules, the responsibility for the ACA benefits falls to the staffing company," he said.

Ed Lenz, senior counsel at the American Staffing Association, agrees that the language was intended for PEO arrangements and should have little effect on most staffing company contracts. "The language that is being discussed was really intended to deal with PEOs," he said.

Lenz noted that his group has recently published memorandum that addresses the question. The memo concludes by saying only a handful of employment arrangements are likely to be affected by the "common law" language — probably.

"We cannot predict whether the common law test will be applied strictly, or whether the regulators will adopt a more practical ''no harm, no foul'' approach. We urge the latter, of course," the memo said.

Lenz added that he believes regulators will not look to redefine the relationship between staffing firms and clients. "Historically, temporary staffing firms … are the common law employer," Lenz said. "And we think for the most part, the government will recognize that."

Best bet: spell it out

Nonetheless, changes brought about by a sweeping law such as the PPACA often cause confusion, and Lenz said these questions need to be addressed. "It's understandable that there is confusion about these rules," he said. "We're far from a point where people are comfortable with the law."

For businesses that have concerns about how the government might interpret the law or arrangements they have with staffing or PEO firms, Lenz and Braswell suggested spelling out employment status of workers clearly in any contract between firms.

"A staffing firm might say, 'If you're concerned about this issue, we can write into our agreement language that will satisfy the provisions of this regulation,'" Lenz said.

In other words, by having contracts that clearly define who the common law employer is, the parties can minimize the risk of questions from regulators. 

Lenz noted that even though the industry is coping with the changes, adapting to the PPACA has been challenging. "There was a lot of consternation, a lot of concern about how the costs would be managed," he said. "Not to mention the operational complexity of complying with the record-keeping, the tracking … all of these have been very daunting challenges for the staffing industry."