Small businesses and the new health care law

Small business and health care - McGrath, LLCThe Patient Protection and Affordable Care Act (also known as the Affordable Care Act or Obamacare) was enacted several years ago, in 2010. Nonetheless, the controversial act still attracts considerable attention from both supporters and detractors. The various provisions of the act have been rolling out gradually, and several employer-related provisions are poised to go into effect in early 2014. As a result, the act has garnered renewed interest and concern from business owners.

In a recent article, the Wall Street Journal explores the misgivings that employers have regarding the new law. Small business owners whose companies are on the verge of having 50 employees feel particularly worried about the effects that the health care mandates will have on their ability to profit.

Under the Affordable Care Act, employers are not mandated to provide health insurance to their employees; however, large employers who have 50 or more full-time employees may pay penalties if they do not offer health coverage or if the health coverage offered if not affordable.

  • If no coverage is offered: $2,000 assessment fee per year for each full-time employee after the first 30
  • If coverage is not affordable: $3,000 assessment fee per year for each full-time employee getting tax credits to buy health insurance. The fee must not exceed the assessment the employee would pay for not offering insurance.

These assessments do not apply to small businesses with fewer than 50 full-time employees. A full-time employee is one who works an average of 30 hours a week or 130 hours in a month, according to the act. However, it’s important to note that even small businesses that employ fewer than 50 full-time employees may find themselves over the threshold under the following circumstance: if the hours worked by part-time employees are calculated to amount to more than 50 “full-time equivalencies,” the employer will have to offer health insurance to employees who work an average of 30 hours per week or face paying the assessments, reported the Indy Star.

According to the federal website for the act, small businesses may qualify for a tax credit if “you have 25 employees, pay average annual wages below $50,000, and provide health insurance.”

According to the Wall Street Journal, many growing small businesses have chosen to curtail their hiring in order to stay below the 50-employee threshold, thereby avoiding the costs of insurance and the penalties for failing to provide it. Others are choosing to hire independent contractors, who do not require the same benefits as employees, to do the work. The use of contractors has nearly doubled since 2007, from comprising 3.5% of all payroll checks to 6.7%. The Wall Street Journal notes, as I did in a previous post, that businesses have to be careful when classifying workers as contractors. Businesses on the threshold that misclassify employees—even if unintentionally—could risk back taxes on top of the health care penalties if the IRS finds that they do have 50 or more employees.

About Chris McGrath

I’m a Carmel, Indiana business attorney providing business counsel, commercial litigation and mediation services based on over 20 years of experience. My firm is founded on a principle of supporting others’ advancement and achievement, and my core values are service, passion, faith & loyalty.Chris McGrath’s Google+ Profile