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Small Business Labor Options Under ObamaCare

Hiring rules with under new Obama careWith the impending ObamaCare rule that employers with 50 or more full time employees must offer employee health care as a part of their employee benefit package, employers are considering their options.

According to Federal guidelines, 27 hours per week is considered a full time employee. States will have different specifications; be certain to check for your specific state requirements.

With these options in mind, it may influence whether or not you fall into the 50 full-time employee category.

Employees, sub-contractors or independent contractors

When I owned Mountain Castles property management company in Steamboat, over fifty housekeeping and maintenance personnel were needed for a ski season.

Employees

Positives – It was easier to control the specific duties and specific time for those duties to be performed. For instance, if a reservation suddenly changed or a tourist appeared without a reservation, employees can be immediately reassigned to cover the need. In a property management company this was extremely important.

Compensation could be set with a “per unit” price or an hourly basis. This allowed employees to have personalized payroll preferences. Some housekeepers who were not only fast but extremely thorough preferred “per unit” pricing.

Maintenance personnel who had to drive from property to property generally preferred hourly.

The employer has more control of exactly who is hired. This becomes important when dealing with very affluent owners and guests.

Negatives – Payroll taxes, unemployment taxes, workmen’s compensation costs, and employee benefit packages (vacation benefits, sick days and personal days, employee reviews with anticipates raises, and now including mandatory health care.)

Employers need to be cautious not only of adding up all of these costs but also the supervisory time involved in managing and administering the paperwork.

Sub-Contractors

Positives – The most significant benefit is eliminating all of the taxes and employment costs involved with employees.

Negatives – Employing sub-contractors naturally means paying a higher hourly or “per unit” price because the sub-contractors are covering the employee costs you just transferred to them.

Employers lose the flexibility of last second reassignment of duties. Schedules are set in advance and they may not have extra personnel available or the willingness to do an “on the fly” reassignment.

The precise individual assigned to a task is regulated by the sub-contractor, not the employer.

Independent Contractors

Positives – Independent contractors have similarities to both sub-contractors and employees. The positives for sub-contractors and independent contractors are the same – payroll taxes and employment costs are the responsibility of the contractor, not the employer.

Caution: There are very specific rules and regulations for independent contractors.

Behavior – Does the employer controls what work is to be done and how it is to be done?

 

Financial – Does the employer control the compensation method, who furnishes supplies, and expense reimbursement?

Relationship – Are written contracts involved specifying benefits? Is the work a key function of the company?

 

In addition, some states require that the independent contractor work for more than one employer, have personal business cards holding themselves out as being in business for themselves, business licenses, and in some states even demonstrating proof of advertising themselves as a business. Check with your particular state for their precise requirements.

There can be very stiff fines for listing an individual as an independent contractor when the government considers them an employee.

 Independent contractors must pay self-employment tax.

Even though it may take six months to get a determination about whether an individual is an employee or an independent contractor, the employer may find it advisable to file a Form SS-8.

An additional positive for independent contractors is that the employer has far more control over the specific duties and the timing of those duties than the employer does over a sub-contractor.

Negatives – Unless the contract is written carefully and the rules and regulations are followed precisely by the independent contractor, the penalty repercussions can roll back up to the employer. More supervision will be required than that of a sub-contractor but still less than required for an employee.

Summary

As the owner of Mountain Castles, all three options were exercised at various times. What worked most effectively for Mountain Castles was to make the decision based on the frequency of need and the expertise required.

Roof maintenance was sub-contracted to a specialist in that area. This specialty was rarely needed and required specific skills not generally required by the individuals who checked the chemicals in hot tubs, shoveled snow and performed minor maintenance. Hiring the skill level of a roofer and paying the extremely high workmen’s compensation rate for a roofer when 95 percent of the time would be non-roof related did not make economic sense.

Housekeeping was too critical and flexible to hire sub-contractors or independent contractors exclusively. Employees were best for the majority of this function with emergency high season overflow duties being handled by independent contractors on an “as needed” basis.

Know the Federal and State rules and regulations for employees, sub-contractors and independent contractors. Make your selection based on the critical function of the job to your business and the skill level and frequency of the need.

As a small business entrepreneur, you have options. Wise use of those options can skyrocket your efficiency and profit.

Elaine Love’s credentials include Masters Degrees in Applied Communication and Alternative Dispute Resolution, 30 years of entrepreneurial awards including “International Innovator of the Year,” the designation of World Class Certified Speaking Coach, the author of Emotional Ice Water and author for PrintPlace.com.  

photo: andjohan

 

 

 

 

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Gary Shouldis is a father, husband, business owner and avid blogger. He is the founder of 3Bug Media, a web marketing company helping small businesses grow their online presence and bottom line. When he’s not working, you can usually find him being chased through the park by his 4 children.

3 Responses to Small Business Labor Options Under ObamaCare

  1. Gary,
    Thanks so much for publishing Elaine’s post and for sharing it with the BizSugar community. These details about employee vs. contractor status are so important and will become even more so as major changes in employee health insurance rules kick in.

    • Thank Heather, lots of potential changes coming to small business in 2013. I think the hardest part is all of the unknown, it’s hard to plan when they politicians can’t make up their minds.

      Many employers don’t realize that it doesn’t matter if you call someone an employee or a contractor, it only matters if they fit the criteria for one in the eyes of the Govt.

  2. Julie Smith says:

    I think the unknown is worse than reality…..wish they would settle on something soon so we can get on with our businesses

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