Who's the Employer?

Answer: The arena in which it is most likely that a true leased employee relationship exists, other than the temp industry, is in the medical profession. However, any leased employee case is a matter of facts and circumstances.

The question here is whether there is enough of a relationship remaining between these doctors and the clinic that the clinic is still their common-law employer. I'm not talking so much about paperwork, such as who is giving out W-2 forms; I'm talking about who the doctors answer to, what will happen at the end of the contract with the hospital, and other issues that would show that the doctors have a continuing employment relationship with the clinic. These are not casual questions, but serious issues that must be carefully examined by a tax professional.

Let's assume that the doctors are, in fact, common law employees of hte clinic as you suggest. As I say, that's a reasonable assumption but one that should be checked. How does the fact that they are being leased to the hospital affect their coverage under the clinic's plan?

It doesn't. One of the great keys to understanding IRC 414(n) is that it does not in any way affect the relationship of the worker and the leasing organization, or make any change in the plans of the leasing organization. If a worker is a leased employee, 414(n) says that the recipient (the hospital in this case) must treat the worker as an employee for many employee benefit plan purposes; however, it does nothing to change the status of the employee and the leasing organization (the clinic)

This means that clinic can continue to cover the doctors under its 401(k) plan, regardless of whether or not the doctors are covered by a plan maintained by the hospital. If the hospital does cover them, then the hospital must consider allocations to the clinic's plan in determining whether the hospital's plan satisfies IRC 415. The reverse is not true. The clinic can completely disregard the hospital in administering its plan.

For more information about the leased employee rules, see Chapter 4 of my book, Who's the Employer?.

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