You're committed to growing your company. Maybe you've even created a strategy to increase revenue by expanding into a new market or adding staff. As a small business owner and eventual seller, that's smart--the time and energy you invest in growing your business now will help increase business value and result in a higher sale price when you eventually list the company in the business-for-sale marketplace.
But in the short term, growth could present a financial risk in the form of healthcare costs. With an ACA mandate for companies with 50 or more FTE (full-time equivalent) employees now in effect, you need to understand the consequences that growth could have on both business value and your bottom line.
How 2016 ACA Requirements Will Affect Small Businesses
Last year, the Affordable Care Act (ACA) required companies with 100 or more full-time-equivalent employees to provide health insurance to their workers. While businesses with fewer than 50 employees were given an extra year to comply, the ACA health insurance provision is finally kicking in for companies with 50 to 99 employees.
What does that mean for small businesses? Starting in 2016, all companies with 50 or more FTE employees are legally required to offer health insurance benefits to employees and their dependents (under 26) or face fines of up to $2,000 per employee per month (minus the first 30 full time employees).
For companies that don't currently provide health insurance benefits, suddenly paying a portion of healthcare costs for 50 or more employees and their dependents can be a big pill to swallow. In fact, the ACA health insurance mandate affects small businesses in several ways:
- Labor Costs--The ACA health insurance requirement increases labor costs for small companies with more than 50 employees. Although the actual dollar costs vary based on available plans and other variables, it's a safe bet that most small businesses will spend several thousand dollars per employee per month?/year? to provide health insurance coverage.
- Administrative Costs--On the backend, small businesses typically experience a significant bump in administrative costs related to healthcare benefits. But starting in 2016, businesses with 50 or more employees will also have to file tax forms that require a fair amount of data collection and recordkeeping.
- Business Value--Rising labor and administrative costs inevitably impact net income and profitability. As a result, the ACA health insurance requirement will negatively affect the value of some companies in the business-for-sale marketplace and cause buyers to think twice about opportunities that require them to pay health insurance benefits for businesses that were not previously covering health insurance but will now be required to do so.
On the upside, health insurance benefits can also be beneficial. Small businesses often use healthcare benefits to attract and retain high-quality talent. A healthier workforce should also be a more productive workforce. It's also important to note that the US Treasury reports that 96 percent of employers have fewer than 50 FTE employees and will be exempt from the new ACA insurance requirement.
Tips for Navigating the ACA Health Insurance Requirement
There are few easy answers for businesses on the cusp of employing 50 or more FTE workers other than delaying adding more staff or reducing the hours of some staff to reduce the number of FTE employees (30 hours per week is considered full time). Since it's impossible to circumvent the ACA mandate for companies with more than 50 employees, it's important to understand your options for navigating health insurance requirements.
- Be strategic. If managing your growth hasn't been a focus before, it should be now. If you aren't prepared to pay health insurance costs yet, then it may be beneficial to delay growing your workforce beyond the ACA threshold for a short period of time.
- Explore efficiencies. One way to reduce financial exposure to ACA healthcare requirements is to explore staffing efficiencies across the organization. By optimizing hiring and scheduling routines, you may be able to achieve a level of growth while remaining below the 50 FTE employee limit.
- Focus on revenue growth. The possibility of additional healthcare costs should never be a barrier to long-term business growth. If your company's growth potential outweighs the cost of healthcare, bite the bullet and expand your workforce now to take advantage of market opportunities.
The ACA health insurance mandate will present a short-term challenge to some small companies. But since growth continues to be the best strategy for increasing the value of companies in the marketplace, the smart move is to accurately forecast the cost of health insurance coverage and add the staff you need to maintain a healthy growth curve.