Now that excise taxes related to employer-provided health care coverage for many employers are in effect, it is time to stop hitting the snooze button on a sleeper issue related to the Patient Protection and Affordable Care Act (ACA). An employer whose company uses independent contractors or workers from staffing agencies will need to ensure that it has correctly identified whether its workers are common law employees pursuant to the IRS’s definition.

Both types of workers may be considered common law employees, and if a company employs any, it must include them in its total employee count for its ACA calculation or risk incurring a hefty excise tax. To identify common law employees, a company must evaluate how its full-time independent contractors and workers from staffing agencies compare with the IRS’s definition of common law employees and the factors the Service considers in making this determination. The IRS generally finds individuals to be common law employees if the company is authorized to direct and control the way they perform their services (actual control is not required).

However, there are many other factors that play a role in this determination. The IRS has long viewed worker classification as a major contributor to the tax gap and, as a result, has actively audited employee classification-a trend that will likely intensify under the ACA even more than before.

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