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June 2013 Contractor Success

The Affordable Care Act and Cleaning Businesses

ObamaCare is a reality; knowing how it will affect your business is imperative.

June 13, 2013
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The recent controversy surrounding the Affordable Care Act set forth by President Barack Obama, commonly referred to as “ObamaCare,” is a reality that both employees and business owners will need to face.

Cleaning industries are particularly affected by this act because there must be enough employees to service and clean accounts — this makes many businesses responsible for providing their employees with full health care.

The Affordable Care Act says that companies with more than 50 full-time employees are required to provide them with health insurance.

While there is a tax credit that businesses may qualify for allowing them to balance out some of the extra cost of healthcare, it only applies to businesses with fewer than 25 full-time equivalent employees, and not for businesses over the 50 limit that are actually required to provide health insurance.

In this case, two half-time employees would equal a full-time one.

So in order to be eligible for the credit, businesses would have to have fewer than 25 equivalent employees.

Small businesses with fewer than 25 full-time employees will then only be eligible for the tax credit if they cover at least 50 percent of the healthcare cost for each individual worker.

Who Benefits?

Middle class employees who could not previously afford health insurance can benefit from the Affordable Care Act, but other small businesses may be unable to meet the cost of insurance while still maintaining a sustainable yearly profit.

There are companies that benefit from this act, such as small, family-owned businesses that already provide healthcare, and smaller companies that were hoping for a cheaper way to provide healthcare.

This is a very limited viewpoint being that the company would have to be under the 25 employee limit.

There are companies that refuse to talk about their opinions on the Affordable Care Act due to the uncertainty.

“We don’t know how it’s going to affect us yet,” said Ron Chapman, human resources for the janitorial company Dycos.

The Affordable Care Act has sent many companies into an unresponsive state on the matter, such as ABM Building Maintenance, Facility Services, Jani-King and Interstate Solutions, who refuse to comment on the matter.

Michael Hiles, vice president of sales and operations at Kelly’s Professional Cleaning Services Inc. (KPCS) said, “Most businesses are redirecting their hiring patterns from what constitutes full-time to part-time to try to stay in business.”

The Penalty For Non-compliance

The federal government cannot force all businesses to provide healthcare to their employees, but they can enact a tax on businesses that do not provide it.

A similar example of this has to do with federal involvement in state laws.

In 1985, the federal government created a law that said that any state with a legal drinking age under 21 would lose money from their highway funds given by the government.

Here is how the penalty would affect real businesses.

KPCS Inc. is a janitorial business with 118 total employees and about 56 full-time and 62 part-time employees.

The penalty cost of their business not providing health insurance to their employees is anywhere from $2,000 to $3,000 per full-time employee per year.

This penalty is only applied per full-time employee after the 30 mark.

For every full-time employee after the first 30 employees, the company will be assessed a penalty for not following the Affordable Care Act.

The added cost of healthcare or the added cost of a penalty will cause small businesses whose yearly profits fluctuate dramatically to be wary of their end-of-the-year expense reports.

This cost will have to be factored in, and businesses will more than likely need to acquire a stable number of accounts to make up for the cost, which is difficult since most accounts can decide to cancel at any time.

Depending on the minimum amount of coverage the Supreme Court decides on, it may even save companies money to choose to pay the penalty over providing healthcare.

“Our company would choose to pay the penalties as set forth under the law due to the cost savings as compared to a traditional health insurance plan. Even then, additional costs incurred with these penalties will have to be recovered from existing employees in the reduction of hours, wage rates and layoffs creating uncertainty for all concerns,” explained Michael Hiles from KPCS Inc.

The Affordable Care Act has been a controversy for the Republican and Democratic parties to argue about, along with employees and employers who have their own perspectives.

However, some of the consequences make many business owners question whether or not the overall effect of the act will be positive.

The Future Is Uncertain

Metrolina Diversified Building Services noted that the Affordable Care Act would make their company consider changing their current hiring patterns.

Some of the possibly dire consequences of this act come from the fact that many companies may try to get around it.

In order to stay under the penalty limit, companies will have to either fire full-time employees or reduce their hours to make them part-time, causing many people to lose their jobs or lose a sustainable amount of pay.

“Either way you look at it, our employees will have lost their ability to maintain the standard of living with which they are accustomed, or the cost associated will jeopardize the level of profitability of the company,” noted Hiles.

Many details of the Affordable Care Act have yet to be hammered out considering the act will not go into effect until January 2014.

The general effect it will have on companies to provide healthcare is uncertain, considering the regulations concerning the minimum amount of coverage allowed has not been determined.

A lot of companies have yet to make drastic decisions concerning the law in order to find out the court’s official ruling on the matter.

The real concern lies on where the economy will stand when all is said and done.

According to many companies, this law will redirect their business plans and cause them to be more hesitant with hiring and expanding, and could even lead to layoffs.

Business owners and many entrepreneurs argue that this consequence and hesitation surrounding future investments and accounts, will greatly affect the economy.

An economics professor at Winthrop University, Robert Stonebraker said, “For the largest firms it isn’t going to matter because they are already providing health insurance, to them it is irrelevant. If I own a business with just over 50 employees, I must make a choice — offer health insurance or pay the penalty.”

Businesses can consider lowering pay as an option to make up for the cost of health insurance for employees.

“From an economics perspective, businesses will need to decide either to offer health insurance or pay higher wages. Health insurance saves cost to employees, so even if their wage is lower due to the insurance, they are still just as well off,” Stonebraker said.

Businesses that do not provide higher wages or health insurance will have difficulty competing for employees to businesses that offer one of the options.

The number of businesses in the range where there are more than 50 full-time employees that are all paid minimum wage is small.

“Less than five percent of employees are paid minimum wage, and most of them are part-time and not required to be provided health insurance,” Stonebraker said.

The competitiveness of employees in an economy just out of recession may make it a necessary option for employers to decide between higher pay and healthcare.

Even if employers choose to reduce their workers to part-time in order to get around the act, business owners must now face the imminent changes that will come with the Affordable Care Act at the start of 2014.

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