Obamacare: Should You Hire Employee Number 51?

Obamacare affects businesses with more than 50 employees, making growing a business beyond 50 a much bigger decision. Here's what you need to know.
February 04, 2013

Plenty of people, including small-business owners, predict that some businesses will opt not to grow so they can avoid employer mandates in the Patient Protection and Affordable Care Act, also known as Obamacare, that will become effective in 2014. According to a U.S. Chamber of Commerce survey of business owners, 71 percent of respondents claimed Obamacare will make it harder to add employees. 

The major issue is the 50-employee threshold. Businesses with more than 50 full-time employees, as defined by the law, will have to supply them with affordable and well-designed insurance, or face fines.

On its face, the decision is simple: Grow beyond 50 and supply insurance or pay fines, or stay small and avoid the problem. However, behind this is considerable complexity, including calculating who and what is a full-time worker and how much benefit would come from growing beyond 50 employees.

“The big thing it depends on is the value that the additional workers are going to bring to the firm,” says Scott Beaulier, an economics professor at Alabama’s Troy University. “If hiring workers 51 and 52 and 53 promises an additional stream of thousands of dollars in additional revenues, the cost of covering those workers could be worth it.”

The result of that calculation depends on a firm’s specific circumstances. In some industries, many or most will find it harder to grow. That’s why, Beaulier says, small firms in the hard-hit construction business are saying they won’t grow beyond 50. “It’s really hard to take on added costs in an industry that’s contracting instead of growing,” he says.

But that’s not true of all industries or firms. Perhaps the ones least affected by the healthcare reform law are those that already provide employees with affordable health insurance. If anything, Obamacare will help these companies because they have already factored health insurance into their costs.

Photo: Getty Images 

“That’s why some companies have been in favor of this,” Beaulier explains. “It puts their competitors at a cost disadvantage.”

No Escapees

In fact, the employer mandate won’t place most or even very many companies at an advantage or disadvantage. According to HealthCare.gov, the Department of Health and Human Services’ website on the health plan, only about 10,000 out of a total of six million U.S. businesses could run afoul of the mandate. That’s because 96 percent employ fewer than 50 workers, and more than 96 percent of the rest already provide health insurance to workers, leaving about 0.2 percent exposed to the mandate.

Still, at more than 2,000 pages, the Affordable Care Act is complex and comprehensive. Few if any businesses will entirely escape its reach. Even those with fewer than 50 employees, for instance, while not required to provide insurance or pay fines, are required to tell workers about state-sponsored health exchanges where individuals can buy coverage.

A free health care clinic in Los Angeles, 2012 (Photo: Getty Images)

Just figuring out whether a company exceeds the 50-employee threshold will take more than a few moments. To start the calculation, a business owner figures out how many workers worked at least 130 hours for each month of the previous year.

Next, employers have to total up all the hours worked by non-full-time employees, and divide by 120. This gives the number of full-time equivalent employees represented by all the part-timers.

Then the employer adds together the full-time employees and the full-time equivalents for each month of the year and divides the result by 12 to get the average number of annual full-time employees for purposes of the law. The National Restaurant Association has a calculator to help employers decide whether they are across the 50-employee threshold.

Resilience of Businesses

Obamacare is far from the first employment law from Washington to prompt predictions of disaster. The Family and Medical Leave Act was nearly as hotly debated in the 1980s, as healthcare reform was in the first decade of this century. And business owners back then were also deeply concerned about its impact.

Labor cost, including salary and benefits, is the biggest single cost for many businesses. But, according to research by the NFIB, almost as many businesses list materials, supplies and inventory as the biggest costs. For these companies, higher labor costs are likely to be less important than fluctuations in prices of materials, supplies and inventory.

In the end, Obamacare is one more cost being added to the business decision about whether to expand, contract or stay the same. Those higher costs will restrain some hiring, Beaulier says. Exactly how much will depend on the conclusions business owners reach after making the calculations for and against growth under Obamacare.

“Businesses are quite resilient,” Beaulier says. “You’ll find some adapting to it. And you’ll see some that remain smaller than they otherwise would in an ideal environment.”

Read more articles on how healthcare reform will affect your business

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