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发帖数: 29846 | 1 Health Costs on His Mind
Small Factory Owner Looks for Ways to Cope With New Law
By EMILY MALTBY And SARAH E. NEEDLEMAN
Sales at Automation Systems LLC, a parts-assembly factory in the Chicago
suburbs, dropped 60% following the 2008 financial collapse. Owner Carl
Schanstra was able to get the firm back on its feet by breaking into new
markets, such as the auto industry. Sales are up 12% this year, and are
likely to rise again next year, too.
But for the 34-year-old, the expected growth in sales brings a new concern.
He is worried that as Automation Systems continues to expand, it will be
subject to a provision in the health-care overhaul that could damage its
bottom line.
Mr. Schanstra is contemplating various strategies he can take next year in
order to sidestep what he believes are significant burdens of complying with
the law. In fact, he's considering whether he should split his
manufacturing firm in two.
That is because his plant, with sales of about $1.6 million for 2012,
currently employs 40 full-time workers, mostly low-paid employees who
monitor the factory equipment. If sales were to continue to rise, the plant
could, conceivably, employ 50 full-time workers in 2014. Under the new
health-care law, the Affordable Care Act, businesses with 50 or more full-
time equivalent employees will be required, starting in that year, to offer
workers health insurance or potentially pay a penalty.
The expense, he says, would drive up the cost of his labor. So he doesn't
want to let employment at the factory reach that number. "I'll be hammered
for having more people at work," says Mr. Schanstra, who took over the firm
when his father died in 2003.
Splitting the business into two would be a "headache," he acknowledges. But
with fewer than 50 full-time equivalent employees in each half of this
business, he hopes to avoid paying the penalties that otherwise could amount
to at least $40,000 a year. His firm hasn't offered health-insurance
benefits since 2003, when premiums jumped 50%, bringing his yearly outlay
for coverage for his staff of 20 people to about $40,000 total.
The Checkup
Automation Systems LLC weighs whether to add workers as Affordable Care Act
nears
Legal and tax experts say breaking up a firm—as Mr. Schanstra is
contemplating—generally won't allow a business owner to stay outside the
parameters of the law. According to the Internal Revenue Code, all workers
who are employed by a common group of corporations or business partners must
be treated as being employed by a single owner.
But an owner could potentially create a spinoff entity if his or her
business has more than one revenue stream, and if there are different owners
for each entity, says Peter Fleming, a partner with Carnegie, Pa.-based
accounting firm Wilke & Associates LLP. He recommends exploring other
options first. "The spinoff move is a big step," he says, because it
requires surrendering a portion of the company over to someone else.
Small-business experts say it isn't surprising that some business owners are
thinking of splitting their firms or taking other steps to eschew the
health-care overhaul due to the associated costs and regulatory burdens. "It
's a very legitimate question to ask, should I try to find a way to get
under the 50-employee threshold," says Alden Bianchi, a partner with law
firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC in Boston. Providing
health insurance is "a compensation cost and it's the job of the business
owner to minimize costs," he adds.
Exploring far-reaching strategies to dodge the employer mandate isn't
uncommon, adds Katie Mahoney, executive director of health-care policy at
the U.S. Chamber of Commerce, because, for some business owners, "it's a
matter of dollars and cents and they don't have it. They find a way around
it or they close their business."
Average premiums for family health-insurance plans have increased 97% since
2002, according to a September study conducted by nonprofits Kaiser Family
Foundation and Health Research & Educational Trust.
Business owners have other less-radical options for maneuvering around the
law's provisions.
Some say they're likely to reduce their workers' hours or even lay off staff
in order to remain below the thresholds established under the act. Under
the law, firms with 50 or more full-time-equivalent employees will have to
provide "minimum essential" and "affordable" coverage, or pay a penalty for
each employee in excess of 30 full-time employees.
Sidney Brodsky, chief executive officer of James Gerard Foods, a gourmet
food business in Phoenix with roughly 50 employees, says he is considering "
weeding out" his weakest performers to reduce his firm's head count to below
50 full-time equivalents. He would then bring on contract workers, should
he need more help.
Mr. Brodsky has offered health-care benefits to his employees for the past
12 years, though he only contributes 50% toward their premiums. By hovering
under the law's employee threshold, he can continue to offer health benefits
to his employees without having to worry about meeting the "minimum
essential" mandate, which requires employers to pay 60% of the total cost of
the plan's benefits.
Others plan to shift to part-time workers, because there are no penalties if
part-time employees aren't offered coverage.
Mr. Schanstra says he is thinking of bringing in a partner to take over one
half of the business, should he divide it. He is also considering opening a
factory in South America—and focus his growth there—catering to industries
in that region. "I want to see where the cards fall," he says. "Splitting
the company is not off the table."
Mr. Schanstra is aware that dividing his business into two may not help him
dodge the law's requirements. His backup plan, if he can't split his firm,
is to keep his head count low or to invest in machinery that would replace
workers. He also plans to raise prices as much as 20% starting in January to
buffer any health-care related costs he may incur in 2014.
Getting part-time staff is "not a really good functional way for us to
operate our business," he says, because of how employees' shifts, which
rotate 24 hours a day, are scheduled for optimal productivity.
"The unknown makes everyone stop spending and start saving," he says. "We
will be more cautious and leaner and tighten up."
Write to Emily Maltby at e**********[email protected] and Sarah E. Needleman at
s*************[email protected] |
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