Why a Small Business Should Stay Below 50 Employees

Normally business growth is a good thing, right?
Well, this will give many small businesses pause.
One of the consequences of the “Affordable Care Act” / “Obamacare” is that a business that employs 50 or more people (or “full time equivalents” – discussed below) have a choice to make. They can:
(a) Choose to provide their employees with “affordable minimum essential coverage” in the form of a group health insurance plan. As you might expect, the government’s definition of “affordable” and “minimum essential coverage” is not that close to reality in either case.
(b) Choose to pay a fine. If any single employee receives a government subsidy by purchasing an individual health insurance plan through the new government exchange, the company will be subject to a $2,000 annual fine for each employee – regardless of how many actually receive an individual subsidy. Now, 30 employees can be exempted from the fine.
So imagine a business with 60 employees that has someone receive a government subsidy to buy an individual health plan on the exchange. 30 employees are exempted from the fine calculation, leaving them to pay a fine on 30 more. 30 x $2,000 = $60,000 in fines!
The real decision, of course, will be to calculate whether or not the price of providing health insurance (and paying at least 50% of the employee premium) will wind up being higher or lower than the penalty. Many companies have indicated that they believe the penalty to be the cheaper option. Time will tell.
A few other considerations:

  • A full-time employee is one who works 30 hours per week in a given month.
  • Part-time employees do not have to be covered by the employer’s plan, but they do count towards the 50 employee threshold.
  • A part time employee’s hours worked is counted towards the total number of “full time equivalents.” In other words, two part-time employees working 15 hours a week = 30 hours, or one “full time equivalent.” The same for three employees working 10 hours/week, etc.
  • Many of the rules and regulations are still being worked out. It is expected that we’ll know a lot more in the next 2-3 months (now that the election is over).

The moral of the story? A small business has ample reason to remain small and do their best to have fewer than 50 employees. Businesses of that size are not faced with the kinds of fines imposed on their larger colleagues. It will be interesting to see the effects this has on business growth strategies and domestic job creation.