Obamacare and Your Business: Are You Subject to the Regulations?

According to a U.S. Chamber of Commerce first quarter survey, the number one worry for American Small Business is the Affordable Care Act (“ACA”), known as Obamacare. With the main requirements of the ACA set to take effect next year, 2013 is a year for study, decision making, and preparation for businesses affected by the new law. There is no doubt that most business owners would love to provide great health insurance for their employees if it makes economic sense. After all, access to quality healthcare is a great thing! Hopefully the ACA will provide more access- even though that access comes at a steep financial cost. From the business owners’ perspective, there is the problem of meeting the ACA requirements, but still making a profit. Fortunately, most small businesses with 50 or less full-time employees will not be penalized under the ACA, and may actually find the ACA provides more options to offer health insurance for employees. But, for businesses that employ 50 or more full-time employees (and, in some cases, even business that employ less than 50), the ACA will require these businesses to provide health insurance, even if they cannot afford it under their current business model. As the ACA lumbers towards implementation, business owners must understand the requirements coming next year.

Is Your Business Affected. The ACA requirements apply to businesses with 50 or more full-time employees. Therefore, as of now, smaller businesses are exempt from the requirements. But if you employ less than 50 full-time employees, don’t rest easy just yet. There is much debate over how the IRS will count “full-time employees”. To most people, a full-time employee means an employee working about 40 hours a week . . . but not to the IRS. For purposes of the ACA, a full-time employee will be an employee working 30 hours a week or more. In addition, the IRS is not going to simply count a business’ 30 hour plus employees. Instead, if an employer has a combination of full-time and part-time employees that equals the hours of 50 full-time employees, that business will be subject to the regulations. So, a business that employs many part time workers could find itself subject to the regulations, even though it only has a handful of full-time employees. More than that, an employer who has multiple businesses could find themselves subject to the regulations even if none of those businesses by itself employs 50 or more people.

Owners of Multiple Businesses Beware. Employers who own multiple businesses might think they will be exempt from the requirements if they employ less than 50 full-time employees in each of their businesses. Not so fast. For individuals who own more than one business, the ACA gives the IRS the authority to add together all the employees of all of that individual’s businesses for the purpose of determining if the regulations apply. We can’t be sure yet if the IRS will use that authority selectively or broadly- but the agency does have that discretion, and we should probably expect it will use it.

The Requirements. The ACA requires employers to provide “affordable” health insurance for full-time employees. The insurance must meet certain minimum standards in terms of the breadth and quality of healthcare offered. Under the law, an employee’s health insurance premium is “affordable” if it does not exceed 9.5% of that employee’s compensation from the employer.

Penalties. An employer that is subject to the requirements, but does not fulfill them, would face various tax penalties, depending on the scenario. If the employer offers no insurance, then the penalties will be $2,000 per full-time employee (with a current exemption of the first 30 employees). If the employer does offer insurance, but that insurance is not “affordable” or does not provide the required healthcare services, then the penalty is the lesser of $3,000 for every employee receiving a federal healthcare subsidy or $2,000 per full-time employee (with a current exemption for the first 30 employees).

Avoiding the Penalty. Companies that are at or near the 50 employee threshold will have some options in the face of these regulations, but not very good ones. You can find a thorough article on these options from Forbes magazine contributor, John Goodman here: Handling Obamacare’s Costs. But, it boils down to a few choices: pay for the more expensive health insurance plan, fire your full-time employees to get under 50 employees, don’t grow past 49 employees, find a combination of part-timers that avoids the penalty, outsource as much work as possible, or simply pay the penalty. For most companies, it’s a choice of many bad options.

The ACA is slowly marching toward full implementation, and it is imperative that business owners understand the requirements of the plan, and their options in light of the new regulations. Somewhere buried deep in the ACA is the best option for each individual business considering the requirements of the new law. This is the year to find that option for your business.

About the Author

Neal Rice | Rice Law FirmNeal is a former Army Officer turned estate planning, real estate & business law attorney.  He is the founding attorney of the Rice Law Firm, in Lancaster County, Pennsylvania. Outside of work, Neal enjoys time with his wife and family, serving his church, boating, traveling, and a good Philly cheese steak. You can email Neal at nrice@ricelegalfirm.com, or visit the Rice Law Firm.

This blog entry is for general information purposes only.  It is not intended to provide specific advice on individual legal, financial, or tax matters. It is not intended to and does not establish an attorney-client relationship.  Please consult an appropriate legal or tax professional for advice pertaining to your unique situation.