Professional Employer Organizations and the Franchise Industry
Through 2014 and beyond, we can expect more Obamacare developments, delays and new implementation of rules and regulations.
If you’re like most small-business owners, chances are high that you didn’t open a franchise or go into business because of your strong desire to fill out paperwork, file forms and worry about rules and regulations. But chances are also high that you find yourself doing more of these tasks and less of what you went into business to do in the first place.
It’s hard to know exactly how much time we spend on compliance and paperwork. Estimates vary wildly and time spent can be difficult to quantify objectively. What’s easier to do is to calculate the cost of federal regulations for small businesses of 20 employees which, according to the U.S. Small Business Administration, has increased to $10,585 per year per employee − 36 percent higher than the regulatory cost facing large firms.
It’s only getting worse. According to the Office of Information and Regulatory Affairs, new regulations and regulatory changes were being posted at a rate of 74 per day over a recent three-month period − 13,000 new regulations were created from 2009 to 2012.
Among the new federal laws small businesses must comply with is the Affordable Care Act, often called Obamacare, a literal behemoth of rules and regulations. The law itself is 2,200 pages and the regulations needed to implement the law are thousands more pages.
Complying with the Affordable Care Act
We’re all aware of the problems with the ACA’s website and the delays in fully implementing some aspects of the law, such as the so-called “Pay or Play” rule that requires employers with 50 or more full-time employees to provide health insurance. There also have been numerous delays in the release of regulatory guidance, sample notices and other information to help all businesses comply with the law. Still, the time is approaching when all aspects of the law will be in full effect and it will impact, to varying degrees, every single business in the United States, even those with fewer than 50 employees.
In fact, there already are a number of things franchisees and franchisors must do to comply with Obamacare. Here are a few examples:
- Summary of Benefits and Coverage. Enrollees must receive an annual Summary of Benefits and Coverage, generally at open enrollment or upon being hired. This is separate from a summary plan description.
- Advance Notification of Certain Benefit Changes. Employers generally must provide notice to employees 60 days in advance of any material change in coverage to the extent the change would need to be reflected in the SBC.
- Preventive Care. All non-grandfathered health plans must (for the first plan year beginning on or after Aug. 1, 2012) now cover a variety of preventive care services with no participant cost-sharing. For women, these services include contraceptive methods and counseling, well-woman visits, and screening and counseling for interpersonal domestic violence, among others.
- Health FSAs. The limit for employee contributions to medical flexible spending accounts is now $2,500 (employer flex credits are disregarded). Contribution limits for 2014 and beyond will be indexed to cost-of-living adjustments using increments of $50.
- Medicare and FICA. For individuals earning more than $200,000 and joint filers earning more than $250,000, the Medicare Part A (hospital insurance) tax has increased to 2.35 percent. To apply the new tax increase, employers should use $200,000 as a baseline income for each employee because they will not know the total household income for those filing jointly.
- Medicare Part D Subsidy. The tax deduction for employers who receive Medicare Part D retiree drug subsidies has been eliminated. The tax deduction has also been eliminated for individuals earning $85,000 or more and married couples earning $170,000 or more.
Uncertainty Surrounding Obamacare
Is your head spinning? Join the club. Many surveys and polls have shown that the vast majority of small-business owners are vastly unprepared for Obamacare and uncertain means for them.
According to a survey of 542 businesses with revenue of less than $10 million conducted in November by Merchant Cash and Capital, 40 percent were still uncertain about how the Affordable Care Act would affect them. Nearly one-third of respondents believed the health law would hurt them by increasing their operational expenses. The vast majority of the respondents had far less than 50 employees and therefore aren’t subject to the law’s employer mandate. Still, the uncertainty surrounding the law and the confusion regarding how to calculate the number of full-time-equivalent employees they have has many small businesses worried that they may cross the 50-employee threshold by 2015 or they may get penalized for doing calculations incorrectly.
The members of my organization, the National Association of Professional Employer Organizations, have found their phones ringing off the hook for the last year with small-business owners asking what they need to do to comply with the law. And rightly so. For decades, PEOs have been helping small businesses − including many in the franchise space − steer through the labyrinth of benefits and employment-related regulations, as well as HR, payroll and benefits administration. The ACA is just one more. Consulting a PEO is probably the best course for franchisees and franchisors who would rather focus on helping their businesses survive and thrive rather than understanding the finer points of health care reform.
Getting all that stuff off your plate has other positive benefits as well. A recent study by economists Laurie Bassi and Dan McMurrer of McBassi & Co. showed that small businesses using a PEO have higher growth rates than other small businesses. Since 2010, employment growth among PEO clients has been 9 percent higher than other small businesses (based on the Intuit Small Business Employment Index), and 4 percent higher than employment growth in the U.S. economy overall.
Through 2014 and beyond, we can expect more Obamacare developments, delays and new implementation of rules and regulations. And, there will be the usual complement of other employment-related federal regulations that arise each year, not to mention the myriad state and local regulations that require your attention and compliance. It could be overwhelming for the typical franchisee or franchisor. But, as we like to say, “Keep Calm and Call a PEO!”
Pat Cleary is president and CEO of the National Association of Professional Employer Organizations. Find him at fransocial.franchise.org.