Most business owners are aware the Affordable Care Act will kick into full swing in January of 2014, but many are not grasping what it means to them.
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“Small businesses are still not prepared,” says Barry Sloane, CEO of Newtek, a health insurance agency for small businesses. “The majority of business owners have not yet begun to think about what to do.”
The first thing a small business owner has to do to prepare for the impending changes is get a good understanding of the nuances of the new law. For instance, under the Affordable Care Act, all businesses with more than 50 employees have to offer their full time workers’ adequate health insurance or be subject to tax penalties. While offering employees health insurance is a great way to attract and retain talent, experts say small businesses have to weigh whether it’s more cost effective to offer it or pay the fines.
“If you don’t offer a plan that’s not good enough then you’ll pay a tax equal to $2,000 per year for each employee that you employ full-time,” says Joe Ellis, Senior Vice President at CBIZ, the business consultancy company. “In many cases the penalty is less than the employer paying for health insurance.”
Figuring out what you plan to do from a headcount perspective, whether it means cutting hours to part-time or even splitting up the business, is one thing to consider. But that’s not all of it. Sloane says small business owners also have to consider the tax implications. To get an understanding of the type of credits and plans a company can offer their employees and the costs associated with them, Sloane says business owners should reach out to their health and benefit brokers.
Communication of the changes is also going to be the burden of the employer. Ellis says sometime between now and October 1, employers need to distribute a notification of the availability of the healthcare exchanges, which are marketplaces where employees can purchase their own health insurance.
While businesses are required to give this notification to employees, it can lead to more confusion. Because of that, Ellis says small business owners should include a cover letter explaining the business is required to issue this communication and underscore the fact the employer is offering a company sponsored plan that will pick up the majority of the costs associated with it.
In addition to communicating the existence of the health insurance exchanges, a small business by law will be required to offer an adequate plan after 90 days of employment -- instead of three, six or 12 months.
“You have to give a good, solid health insurance plan that covers ten categories of service,” says Ellis. “The plan also has to be affordable.”
According to Ellis, the best way to prevent running afoul of the law when it comes to the affordability aspect is to make sure you don’t charge more for health insurance than 9.5% of the lowest paid employee’s salary. If the plan is deemed unaffordable, the business will be fined a $3,000 tax penalty per employee, says Ellis.
“If you have an employee that makes $20,000 a year and you are asking them to pay more than $158 a month, that’s unaffordable, and you would have to pay the $3,000 tax penalty per employee,” says Ellis.
Since the reform act will have an impact on payroll, human resources, taxes and accounting, small business owners should make smart decisions about where to get advice for navigating the new law.
“Small businesses should not wait. They should start getting as much information as possible now,” says Sloane. “They should start looking at other types of expense reductions in their company now to offset the potential costs of higher insurance.”