While President Obama assured us that the Affordable Care Act (ACA) would not affect small business, that’s simply not true. Yes, it is accurate to say that most businesses with under 50 employees will be free from the most burdensome regulatory imposition under the Act—i.e. the “Employer Mandate.” That’s the requirement that says that businesses with 50 or more full-time, or full-time equivalent, employees must offer qualifying affordable health insurance. But it’s unfortunately quite complicated for businesses on the cusp to figure out whether in fact they are subject to the mandate. It really requires businesses to go back and look at their employee hours over the past several months to figure out how much time they have worked on average, and to do a series of calculations on each employee. That can be cumbersome, time-consuming and exhausting for a business owner, trying to juggle other things to keep his or her business afloat.
This is something that many “small businesses” will have to do to be sure that they are in compliance with the law. This is because, if they improperly assume that they are exempt from the Employer Mandate, they are facing steep fines that could very well sink a business. And this isn’t a one-time thing. Every six months or every year, small businesses on the cusp might have to continually go back and check to see whether they are still below the 50 full-time, or full-time-equivalent, threshold. Unfortunately this creates a true disincentive for businesses to grow and expand their operations because it essentially creates a major impediment for growing beyond 49 full-time, or full-time-equivalent, employees.
Complicating matters still more are the aggregation rules, which require business owners to treat separate and unrelated businesses as one company for the purpose of the Act. The Washington Post ran a great article discussing confusion over aggregation rules and citing a NFIB Research Foundation study that shows huge problems for small business owners in figuring out whether they are compliant. With these aggregation rules in effect, truly small businesses can and will be swept into the employer mandate if they have common ownership.
The idea was to prevent businesses from avoiding the employer mandate by splitting their business into separate companies. But, since many small-business owners holds interests in multiple companies, that have always been treated as separate entities, the practical effect is that these business owners must either find a way to comply with the employer mandate, pay exorbitant penalties or downsize—which might well mean closing a business or laying off employees.
The aggregation rules are one of the most vexing issues facing small business owners under the new law. They are so complicated, that they make the rest of the Act look somewhat simple. And rather than trying to explain the aggregation rules to NFIB members, we have simply directed business owners to seek assistance from professional tax attorneys and CPAs. This is because the aggregation rules are simply too complicated, and because it’s so crucially important that business owners get this right. If they errantly treat their businesses as separate when they should be treated as a single business, the owners will be facing heavy penalties under the ACA ($2,000 on the head of each employee, or $3,000 for each employee accepting government subsidies through an exchange). And one should not be surprised to see a whole string of lawsuits from employees in the future alleging that employers improperly treated their businesses as separate entities when they should have been combined for the purposes of the law.