NCPA - National Center for Policy Analysis

A Health Scare for Small Businesses

January 18, 2013

Even though the rule doesn't go into effect until early 2014, a business could be subject to the so-called employer mandate if, during 2013, it averages 50 or more full-time equivalent employees, according to recently released regulations from the Treasury Department and the Internal Revenue Service. This means employers will have to provide health coverage that meets government standards or potentially pay a penalty, says the Wall Street Journal.

  • Employers have the choice to calculate their head counts by averaging the full 12 months of 2013 or a consecutive six-month period during the year.
  • Many small-business owners haven't yet realized that the way they structure their firm in 2013 could determine their status under the law in a year's time.
  • The government issued the little-noticed regulatory guidance on December 28.
  • To avoid the health care law's penalties, many employers are considering hiring only part-time employees or deliberately curbing growth so that they have no need to hire.

Many small business owners believe the best solution is to hire independent contractors, who would be able to take on certain tasks without upping the company's headcount.

  • Typically, independent contractors are less expensive for employers, who don't have to pay taxes on wages or supply benefits, as they would for their employees.
  • Reliance on independent contractors has increased over the years, particularly in the recession, when employers sought less expensive labor.
  • In December 2012, 6.7 percent of payroll checks written by small employers went to 1099 workers, or those not considered employees of a company, according to SurePayroll, a Chicago-based payroll firm.
  • That's roughly double the 3.5 percent of payroll checks that went to 1099 workers in December 2007.

The trend is expected to accelerate this year given the framework of the looming health care law, employment analysts predict.

Source: "A Health Scare for Small Businesses," Wall Street Journal, January 16, 2013.


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