Affordable Care Act small business provisions may impact your bottom line!
Affordable Care Act small business provisions will begin to impact many business owners’ bottom lines as soon as 2014. I have worked in the small business sector my whole life. Responsible for operations, I am very concerned with the impact this will have on owner’s bottom lines. Anytime we impact business owner’s profitability, hiring decisions, pricing, and operations will change. The Secretary of Health and Human still has many things to define that will impact how penalties or “Employer Shared Responsibilities” will be assessed, reported, and audited. One thing we do know, small businesses must educate themselves immediately. The provisions in the Affordable Healthcare Act give us enough information to see that strategies will need to be implemented in 2013 to minimize the impact of penalties that will be assessed in 2014 for qualifying employers that meet the “mandate” or will be required to pay their employer shared responsibilities. I have calculated the impact on the businesses I have worked for and it is significant. The act is certain to create some negative implications for the employees and clients of qualifying small business.
Affordable Care Act small business penalties will not impact small employers. Small employers are defined as businesses with fewer than 25 full time equivalent employees. A full time employee is defined as working an average of 30 hours per week. Here is an example: If an employer has 20 employees working 15 hours a week, it would equate to 10 full time equivalent employees. Qualifying small employers average annual salaries must also be under $50,000. For these employers, there are incentives to provide health insurance. Tax credits of up to 35% are available right now for premium contributions. Those who provide minimum insurance standards can also maintain their small employer status even if they grow into a large employer qualification as long as they continue to provide minimum health insurance. Tax credits will also grow to 50% in 2014 to incentivize employers to provide insurance to their full time employees. Small businesses that grow into meeting the qualifications of a large employer will be expected to pay their shared employer responsibilities if they do not provide minimum health insurance requirements and send their employees to the Affordable Insurance Exchange.
Qualifying large employers will be defined as businesses with more than 50 full time and full time equivalent employees. Affordable Care Act small business provisions will require employers who meet the “mandate” or qualify as a large employer pay employer shared responsibilities if they do not provide minimum health insurance required by the act. Businesses must inventory their employees to see if they qualify. Here is an example: A business owner employs 20 full time employees that average 30+ hours a week and 100 part time employees that work a total of 2,000 hours. The secretary has yet to define the number of hours worked annually that will determine a full time equivalent employee, but a full time employee is defined as averaging 30 hours so we’ll use it in this example. If we divide the total hours by 30, it equates to 66 full time equivalent employees. This employer would employ 20 full time and 66 full time equivalent employees totaling 86 thus meeting the “mandate” and expected to pay employer shared responsibilities.
Qualifying large employers will be expected to pay their shared employer responsibilities if they do not provide minimum health insurance requirements to their full time employees. Affordable Care Act small business provisions assess a $2,000 penalty per full time employee to employers that do not offer minimum health insurance requirements. Qualifying large employers receive an exemption for 30 full time employees. Full time equivalent employees are not used to calculate the penalty, but only to meet the mandate. Employer shared responsibilities are assessed by the number of full time employees averaging 30 hours per week less the 30 employee exemption. The example above would be greatly impacted by the number of employees in that 2,000 hour group that averaged 30 hours. If 20 of the part time employees averaged 30 hours, the employer would employ 40 full time employees. If the employer did not offer minimum health insurance coverage to these employees, it would pay a $20,000 in penalties. (40 Employees – 30 Employee exemption = 10 Employees x $2,000 penalty)
Affordable Care Act small business provisions will have a far reaching impact on business. Qualifying employers will begin to implement their strategies in 2013 to minimize penalties assessed by the act. Businesses will have to weigh the penalty against the cost of providing minimum health insurance to their employees. Small business owners may determine it is more cost effective to pay penalties rather than provide insurance. Employers may determine that it is cost effective to create positions averaging less than 30 hours to avoid employer shared responsibilities. One thing is certain; it will create far reaching implications in many industries. Small business is about profitability. Many industries operate on thin margins in our economies competitive landscape. It is unreasonable to expect small business owners to absorb these costs and it is certain they will not. Consumers will pay with increased cost of goods and services. Employees will pay with fewer hours, decreased hours, and fewer employers offering benefits. We’ll have to wait and see how small business owners operate their businesses to maintain profitability. It is important to remember that Small business owners are entitled to make a profit and it is not up to us to dictate their margins. Many industries have very small margins. All it takes is a few extra costs and it makes it unappealing to continue to operate the business.