Mark Twain once observed, “The report of my death was an exaggeration.” Many people similarly have predicted the death of the Affordable Care Act since it was enacted more than four years ago. The federal health care legislation was challenged and key provisions upheld in the Supreme Court in 2012. Some provisions were delayed. But make no mistake: The ACA is here to stay, at least for the foreseeable future. That means small business owners must avoid several pitfalls that can subject their operations to crippling penalties for violations.
Many small business owners assume the ACA does not apply to them. Employers of every size are subject to some ACA provisions. Any employer subject to the Fair Labor Standards Act was required to send a marketplace notice to employees by Oct. 1, 2013. Even if your business doesn’t offer health care coverage, you’re required to make your employees aware of health care marketplaces. Also, all employers who offer health coverage are required to provide employees with a standard “summary of benefits and coverage” form explaining what their plan covers and what it costs.
Obligations under the ACA increase along with the size of a company — notably, the employer mandate requiring employers with 50 or more full-time equivalent employees to provide health coverage by 2016. The mandate goes into effect for employers with 100 or more employees in 2015. An employer can easily miscalculate its number of full-time employees and ignore obligations the employer doesn’t believe apply.
Some employers have suggested dropping full-time employees to part-time to avoid the employer mandate and other requirements that arise with more employees. This approach is not effective. First, the ACA is not really concerned with how many persons you employ, but how many full-time equivalents (FTE) you employ. Second, you might define a full-time employee as working 40 hours per week. But the ACA defines full-time as 30 hours per week. Any employee who works 30 or more hours per week is counted as one FTE. The hours worked by employees working less than 30 hours per week are totaled and divided by the number of employees to arrive at a number of FTE employees who are counted along with your full-time employees to arrive at your total number of full-time employees.
Some medium-sized businesses have expressed their intent to split into smaller business entities to avoid ACA requirements. This course of action doesn’t change the total employee count because ACA regulations have strict aggregation rules for affiliated businesses and businesses under common control by which the ACA calculates the head count based on overall business ownership. So, if you own two businesses. the total head count of both is used to determine if you have 50 or more FTEs. Trying to split your company into several entities to avoid the ACA rules can lead to substantial penalties. And if you already operate multiple small businesses, you already are subject to the aggregation rules and may unwittingly be in violation of ACA requirements based upon business size.
Finally, and perhaps most dangerous, is the growing trend of reclassifying workers from employee to independent contractor status to avoid both ACA and overtime requirements under the Fair Labor Standards Act. There are numerous criteria involved in determining an employee’s appropriate classification, and each state and federal agency that examines workers’ status applies different criteria. A written agreement declaring such status is but one factor in the totality of circumstances that determines proper worker classification. Don’t change your employees’ status without first seeking legal counsel on properly classifying your workers. Doing so can invite scrutiny not only for ACA compliance, but also for tax and overtime obligations by a host of government agencies.