Subscribe Now!
Free Daily News, Jobs, Webcasts, Discussions
Post and Distribute
Your Jobs
ARPA News
ARPA Webcasts

Featured Jobs

Plan Document Specialist

Jocelyn Pension Consulting
(Telecommute / Boulder CO / San Rafael CA)

Jocelyn Pension Consulting logo

Director of Finance

NYCDC of Carpenters Benefit Funds
(New York NY)

Retirement Plan Administrator

Bates & Company
(Telecommute / Winter Park FL)

Bates & Company logo

Retirement Plan Administrator

My Benefits, LLC
(Telecommute / Daphne AL / Atlantic Beach FL)

My Benefits, LLC logo

DC Retirement Plan Administrator

The Nolan Company
(Telecommute / Overland Park KS)

The Nolan Company logo

401(k) Implementation Manager

Human Interest
(Telecommute / San Francisco CA)

Human Interest logo

Retirement Plan Administrator (Account Manager)

Kushner & Company
(Telecommute / Portage MI)

Kushner & Company logo

DB Retirement Plan Administrator

The Nolan Company
(Telecommute / Overland Park KS)

The Nolan Company logo

Director of 401(k) Implementation, Core

Human Interest
(Telecommute / Mill Valley CA)

Human Interest logo

Retirement Plan Administrator

RSW & Associates
(CT / NJ / NY)

RSW & Associates logo

Product Support Consultant

ftwilliam.com part of Wolters Kluwer Legal & Regulatory
(Telecommute)

ftwilliam.com part of Wolters Kluwer Legal & Regulatory logo

401(k) Consultant

TPS Group
(Telecommute / North Haven CT)

TPS Group logo

DC or DB Administrator

Farmer & Betts, Inc.
(Telecommute / Tacoma WA / Tualatin OR / Littleton CO)

Farmer & Betts, Inc. logo

Employee Benefits/Health and Welfare Attorney

Miller Johnson
(Telecommute / Grand Rapids MI / Kalamazoo MI / Detroit MI)

Miller Johnson logo

DB/DC Administrator

Primark Benefits
(Telecommute / Burlingame CA)

Primark Benefits logo

Retirement Plan Consultant / Relationship Manager

Associated Pension Consultants
(Chico CA / Sacramento CA)

Associated Pension Consultants logo

Free Newsletters

“BenefitsLink continues to be the most valuable resource we have at the firm.”

-- An attorney subscriber

Mobile App image LinkedIn icon
Twitter icon
Facebook icon

BenefitsLink > Q&A Columns >

Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

Independent Contractors on Health Plan

(Posted June 12, 2002)

Question 197: Our company has only 3 employees on the payroll. Everyone else is an independent contractor, whose pay is reported on an IRS Form 1099. Because we have only three employees, our health insurance rates are going through the roof, and we'd like to offer coverage to our contractors. Will this put us in a bad position?

Answer: Let's just say "I think you ought to think this through again."

Let's start with the basic qestion of whether your "contractors" actually are your employees. This will depend on the facts of your situation. As I've emphasized in recent Q&As and in Chapter 2 of my book, Who's the Employer, giving someone a Form 1099 simply reflects that you believe they are an independent contractor. It does not determine that status as a matter of law.

Let's assume they are independent contractors, though. Covering them under your plan probably is not a good idea. Here's why:

  • Take a good look at your insurance policy. It probably covers only employees. Thus, the insurance company could end up disputing whether a worker is entitled to coverage if you try calling them "employees" for health plan purposes only.

  • Internal Revenue Code section 106 excludes from an employee's income amounts the employer pays for health plan coverage. There is no comparable exclusion for amounts paid for an independent contractor. Therefore 100% of the money put into the plan will be included in the contractor's income, although they will be able to deduct a large amount of it under another section.

  • Providing health benefits is an element that is considered in determining employee status. In other words, if you call them employees to get them health plan coverage, you increase the probability that a court or the IRS will find them to be employees for other employment law purposes (such as FICA and FUTA taxes).

  • Let's just pretend for a moment you get past all those hurdles. If they really are independent contractors, now you probably have a multiple employer welfare arrangement (MEWA), which must file a separate form with the DOL and is subject to state insurance regulation.
Notice that I am not suggesting that you call them employees for health plan purposes but independent contractors for payroll tax purposes. The rules are close to identical for everything. Once you are an employee, you are an employee. That means taxes are withheld from your pay. It also means that, if you are otherwise eligible, you are entitled coverage under any other employee benefit programs the company offers. It is possible to exclude workers from certain plans, but this must be done carefully, and with the aid of legal counsel.


Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.


Copyright 1999-2017 S. Derrin Watson
Related links:

(restricted access)

(restricted access)

© 2021 BenefitsLink.com, Inc.