Split Your Company to Beat Health Insurance Reform…Think Again.
Written by Marlo .
Robb Mandelbaum’s piece today in the New York Times “You’re the Boss” section today is an excellent read for many small to mid-sized business owners seeking to “game the system” once the Affordable Care Act is fully in place. The article explains in cogent detail why a business owner cannot bust up a large company into smaller companies to avoid application of penalties associated with failing to provide health insurance after 2014.
The Act requires large employers to pay a per employee penalty for failing to provide health insurance (but, only if one of the employees receieves credits or assistance in purchasing health insurance). A “large” employer is generally considered 50 or more full-time employees. However, it is more complicated than that. What constitutes a full-time employee and how part-time employees are counted is not a straight forward calculation. There have been commentators and experts alike suggesting that a simple fix would be to take a 50+ employee company and bust it up into two 25 employee companies.
That advice is wrong. And, if followed, can lead to sizable penalties.
The reasons why the advice is wrong stem from the idea used in several tax, employment, and wage issues – the idea of common control. Generally, in most every wage, tax, or employment issue the state and federal government will look at the common control of the employees and the company. You cannot operate several smaller businesses to escape application of various wage, tax, and employment laws regardless of what the business documentation claims. You can’t claim all of your employees are “private contractors.”
And the same applies to the Act.