Affordable Care Act Limits Profitability and Reinvestment in Business Growth
QUESTION: What state legislative or regulatory policy is having the most impact on your franchise business?
WILSON: “The Affordable Care Act will affect franchises in a way differently from most businesses, primarily due to the interpretation of common ownership rules.
The ACA identifies a large business as one that has more than 50 employees. Applying aggregation rules for companies that are commonly owned, a franchisee with more than 50 employees across his franchise locations is no longer considered a small business, pushing most small-business franchises into a large-business designation.
Common ownership rules apply even when franchises owned are investments in varying industries. Many franchisees will own different franchise types, as the approach is less risky and have higher success rates than other start-ups.
Common ownership rules also apply when franchise owners invest in team members to further grow the franchise network. For example, I have invested in two managers with entrepreneurial spirit to start a new franchise location. Our investment interest under common ownership bumps their small business into the large-business designation despite their employing less than 20 individuals. Results like this could restrict investments that stimulate the market and offer ownership advancement to those who would not otherwise have the financial means.
The cost burden of ACA limits profitability and reinvestment in business growth. Franchises are usually independent small businesses with profit margins more similar to small businesses than large.
We have always offered health insurance to all full-time employees, as we firmly believe it’s the right thing to do. Since our franchise locations are combined under common ownership rules, we anticipate an additional $250,000 in annual expenses due to increases in participation and increasing premium rates.
Those expenses will need to be recovered from other aspects of the business somehow. Most businesses are looking into cutting employee hours or wages. Taking this course would mean sacrificing the employee culture and service atmosphere we’ve worked diligently to create and as a service-based company, we simply can’t afford that.”