To comply with the ACA, do the math—if you can
How many employees do you have? It seems like a simple question, but when it comes to the Affordable Care Act, not so much. Our fifth installment offers this advice: ‘My word to the wise is not being too cute by half.’
My wife and my brother are both math teachers, which means I end up hearing quirky number facts on a regular basis (apparently you can have more than one infinity and 0.999 repeating is the same as one).
But of all the twisted numbers I’ve experienced lately, the definitions in the Affordable Care Act are some of the thorniest. A full-time employee is anyone who is working over 29 hours a week, except when it isn’t. If a business covered under the act doesn’t offer coverage for 95 percent of its workforce, it has to pay a penalty on each worker not covered—except the first 35.
For part-time workers, of course, you add the hours and divide by 120. This is all determined over a period of three months, unless it’s six months or 12 months. By the way, there are several fights to change these rules entirely. Whew! It looks like we need an expert. Mike Kahley is the senior vice president for Dallas-based Lockton Dunning Benefits. He and his business partner consult with Wingstop, Sonic, Boston Market and Famous Dave’s and have performed ACA modeling for more than 200 franchisees within the last year.
So can he explain the full-time equivalent calculation? “Probably not on the phone and do it justice,” Kahley says. “It is not straightforward. It is confusing.”
Mark Lowenstein is the director of marketing for New York City-based Merchant Cash and Capital, a cash advance company that surveyed over 500 small-business owners about the Affordable Care Act. He says many franchisees struggle with this issue.
“That seems to be one of the bigger talking points—how to figure out how many employees I actually have,” Lowenstein says. “A lot of business owners don’t know that equation and don’t know how they fall.”
John Thomson knows this firsthand. As a franchisee of Dickey’s Barbecue Pit, he has 18 stores in Utah, Colorado and Idaho. He says he’s going to try to get his multi-unit business down to the ACA’s definition of small (50 full-time equivalents or less).
“I don’t have those exact numbers,” Thomson says. “It’s probably 100-and-something full-time employees. We think we can probably cut down to less than 50 people that are full time. We’ll go to a much bigger part-time staff.”
Halving the full-time employees is daunting enough. But the rest of the ACA’s math is not on Thomson’s side either. As a franchise attorney and partner with Marks & Klein, a Red Bank, New Jersey, firm specializing in franchise, business and estate law, Justin Klein says it’s hard to trick the tax man.
“They’ll look at hours of service and weeks worked, the amount of hours that they’re actually working over the year,” Klein says. “My word to the wise is not being too cute by half. The penalties are way worse than actually complying with the law.”
That’s because part-time employees like the ones Thomson is talking about count too. Download a worksheet from Lockton Dunning Benefits, which shows a rough way to look at the FTE calculation. A business with many part-time employees can be just as much on the hook as one with 51 full-time employees (though the total number of employees that must be covered may be lower).
The math can be difficult, but the most common response has been fairly simple. John Gordon is the principal of the San Diego-based Pacific Management Consulting Group and has worked with dozens of franchisees. He says many are responding by cutting hours.
They’re starting “to get the store scheduling model set so they can operate with as few people over 30 hours per week,” Gordon says.
Unfortunately, Gordon says, that dodge is only a partial solution, especially since it can end up eating into profits. The new math of the Affordable Care Act means no number is necessarily what it seems.
“That is problematic operationally—typically you reward your best employees with more hours,” Gordon says. “They tend to be the more productive folks and the folks you rely on for opening and closing.” The outcome of cutting hours “is strictly to be determined.”
Got questions about how the Affordable Care Act applies to your business? Send them to Beth Ewen, firstname.lastname@example.org, and we’ll find answers.
If you’re too big to re-shuffle hours, you’ll need to know it sooner rather than later. The best thing you can do is see where you’ll fit in well ahead of time. Use the worksheet shown at right from Mark Kahley of Lockton Dunning Benefits, at http://www.franchisetimes.com/pdf/HealthcareSOS-Worksheet.docx, or check out the calculator at http://www.healthlawguideforbusiness.org/fte-calculator.