Is it Wise to Rethink Your Entity Structure Under Obamacare Taxes?
Obamacare left many business owners with important decisions to make. As part of the Affordable Care Act, business owners might have to offer healthcare to their employees, depending upon the size of their business. Business owners most affected by the change were those who owned smaller ventures. When Obamacare was unveiled, business owners had to weigh the options available to curb costs in overhead.
What the Law Says
Starting in 2015, employers with 100 or more employees have to cover 70 percent of full-time workers in order to avoid tax penalties. Employers with 50 to 99 employees must also begin offering health coverage in order to avoid fines. The caveat to the 50-employee rule is that employees may purchase coverage through the available exchange options and must have wages that are low enough to qualify for subsidies. The rules and restrictions don’t apply to part-time employees who do not work over 30 hours a week.
Employers Reducing the Number of Hours and Employees
Employers are faced with a number of challenges. Some employers have chosen to exercise the option of converting full-time employees to part-time hours as a way to reduce the number of full-time employees and avoid health insurance responsibilities. Other employers have responded by slowing hiring and keeping their headcount under 50 in order to avoid having to offer health insurance to their employees.
Straddling the Fence
Some employers are straddling the fence when it comes to Obamacare by offering only the minimal coverage to their employees. Other companies are encouraging their employees to seek coverage on the exchange. While some employees can expect their premiums to go up, the quality of coverage may be far better in many cases.
Franchisees Feeling the Pressure of Obamacare
Most small businesses will be able to avoid the costs associated with having a full-time staff. The companies most likely to be affected are those with multiple locations. For example, franchises tend to have multiple locations, which could easily put them over the threshold for needing to offer insurance. Since franchise entities have less access to the most favorable negotiating terms with insurance companies, they may be hit hard by the changes. Costs for owning a franchise could increase due to the very structure of a franchise.
How Do the Fines Work?
The new law requires that employers with 50 or more employees pay for coverage for “substantially all” – 95 percent – of the employees or face fines. Companies not offering coverage for their employees must pay a fine of $2,000 per employee.
Who Will Be Affected by the Obamacare Provision?
According to research, approximately 96 percent of employers will not be affected by the law. Altogether, four percent of businesses will be affected by the law changes. Two percent of employers with up to 99 employees will be affected, and two percent of employers with more than 100 employees will be affected by the law changes.
The Reality of Those Changes
Employers with more than 100 workers must meet the various compliance requirements starting in 2015. Businesses have to prove that they are offering affordable coverage within the 70 percent threshold. Business owners are going to have to rethink their structures to accommodate these new legal changes.
Is it Wise to Rethink the Structure of Your Business in the Wake of Obamacare?
Businesses have several options available to them: they can raise their prices, cut employees’ hours, lay off staff or outsource certain projects. Companies have pared down their structure by offering contracts to service firms. Employers can increase their headcount and reduce the number of full-time employees they have on their staff. There are additional options available to employers, such as keeping the same structure and raising prices for the consumers.
On the topic of using contractors, make sure you simplify your tax filings and maintain accurate records. When you decide to file 1099 online to several contractors, it can get cumbersome and time-consuming. This is because you’ve not just got to send out printed copies of the 1099 and w-2 forms, not just submit the filings to the recipients. A quick tip: find a service to efile 1099 forms that does BOTH the e-filing and the print and delivery for you. Check out www.eFile4Biz.com to see what one should look like.
Employers can also hire contractors, who don’t technically qualify as full-time employees. Other companies have decided to rely primarily on temp employees to avoid driving up costs. From paring down the headcount to sourcing key tasks, companies have tackled the increased costs of offering healthcare to employees with a range of methods.