ACA testing and direct sellers

[alexa]

We have direct seller who get a W-2 from us; the majority pf what they do for most is 100% direct sales. They are excluded from H&W & 401k benefit plans.

Must these direct sellers be counted in ACA testing?

thnaks

Alexa

[Brian Gilmore]

Yes, the preamble to the ACA employer mandate regs addresses this issue:

https://www.federalregister.gov/documents/2014/02/12/2014-03082/shared-responsibility-for-employers-regarding-health-coverage

C. Application of Hours of Service to Certain Employees

Commenters requested guidance on the application of the hours of service definition to certain categories of employees whose hours of service are particularly challenging to identify or track or for whom the final regulations' general rules for determining hours of service may present special difficulties.

The Treasury Department and the IRS continue to consider additional rules for the determination of hours of service for purposes of section 4980H with respect to certain categories of employees (including adjunct faculty, commissioned salespeople, and airline employees), and certain categories of hours associated with work by employees (including layover hours (for example, for airline employees) and on-call hours). The regulation authorizes the promulgation of such rules through additional guidance, published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b)).

Until further guidance is issued, employers of adjunct faculty, employers of employees with layover hours, including the airline industry, and employers of employees with on-call hours, as described in sections VI.C.1 through VI.C.3 of this preamble, respectively, are required to use a reasonable method of crediting hours of service that is consistent with section 4980H. Further, employers of other employees whose hours of service are particularly challenging to identify or track or for whom the final regulations' general rules for determining hours of service may present special difficulties, such as commissioned salespeople, are required to use a reasonable method of crediting hours of service that is consistent with section 4980H.

A method of crediting hours is not reasonable if it takes into account only a portion of an employee's hours of service with the effect of characterizing, as a non-full-time employee, an employee in a position that traditionally involves at least 30 hours of service per week. For example, it is not a reasonable method of crediting hours to fail to take into account travel time for a travelling salesperson compensated on a commission basis. Paragraphs C.1 through C.3 of this section VI of the preamble describe methods of crediting hours of service that are (or are not) reasonable to use with respect to adjunct faculty, layover hours, including for airline industry employees, and on-call hours. The examples of reasonable methods provided are not intended to constitute the only reasonable methods of crediting hours of service. Whether another method of crediting hours of service in these situations is reasonable is based on the relevant facts and circumstances.

...

Commenters noted that the rate of pay safe harbor cannot be used, as a practical matter, for tipped employees or for employees who are compensated solely on the basis of commissions. While this is correct, employers can use the two other affordability safe harbors, Form W-2 wages and federal poverty line, for determining affordability for employees whose compensation is not based on a rate of pay.

[alexa]

 

But we have been excluding these direct sellers based on Pub 15A, similar to exclusion  of real estate agents.

However, it is my understanding that these direct sellers' income is reported on W-2 with all taxes being withheld by us including federal income tax, etc..

Can if we exclude them if they are getting a W-2 vs a Form 1099?

Thank you.

 

 

 

 

[Brian Gilmore]

Unfortunately what I copied above is the lay of the land for ACA purposes if they are W-2 common law employees.