You own several small businesses with less than 50 employees, so you might think your businesses are each individually exempt from the provisions of the Affordable Healthcare Act, often referred to as “Obamacare.” Wrong! Within the Obamacare regulations is a provision that companies that share a common owner are treated as the same single entity. What this means is if you own multiple companies, the number of employees in total across all the different legal entities is the number that is considered in whether you are exempt from Obamacare requirements.
Let’s look at several examples. You own five businesses 100%. You are a partner or shareholder in 10 other businesses. Each is a separate legal and tax entity. Let’s say each of them is a corporation with its own employer tax ID, separate bank accounts, and managers. Three of the businesses are franchise restaurants, one is a hair salon, two others are lawn care services, and the other are various other types of service businesses:
|
Business |
Number of Employees |
Full Time Equivalent Headcount |
Ownership |
|
Restaurant 1 |
38 |
20 |
100% |
|
Restaurant 2 |
27 |
27 |
100% |
|
Restaurant 3 |
100 |
45 |
100% |
|
Hair Salon |
15 |
10 |
25% |
|
Lawn Service 1 |
46 |
39 |
100% |
|
Lawn Service 2 |
28 |
28 |
100% |
|
Car Detailing |
16 |
10 |
40% |
|
Courier Service |
15 |
8 |
30% |
|
Dry Cleaner |
12 |
6 |
10% |
|
Gas Station |
8 |
6 |
10% |
|
Total Employees |
305 |
199 |
If we look at each business individually, we can see that only one business has more than 50 employees and the full-time equivalent number (FTE) is still less than 50. This is a good time to explain how to calculate FTE. The full-time annual hours worked is set at 2080 hours (or 40 hours per week for 52 weeks).
Let’s take Restaurant 3 as our FTE calculation example. The company has 100 employees and the work schedules and hours breakdown as follows:
|
Employee Type |
Number of Employees |
Total Hours by Employee Group |
|
Full-time Employees |
10 |
20,800 |
|
Part-time 20 hours per week |
50 |
52,000 |
|
Part-time 10 hours per week |
40 |
20,800 |
|
Total Hours |
93,600 |
|
|
Divisor |
2,080 |
|
|
Full-time Equivalent (FTE) |
45 |
To be in compliance with Obamacare compliance, you are required to provide healthcare coverage; this means each of your businesses must provide insurance coverage. Many business owners mistakenly believe that having multiple legal entities with fewer than 50 FTEs makes them exempt from Obamacare requirements; this is erroneous. In the coming months, the Internal Revenue Service will begin a systematic process to identify entities with common ownership and review these organizations for compliance.
If you own multiple entities, it is time to sit down with a qualified business advisor (one that understands Obamacare requirements), your accountant, and your attorney to develop a strategy for addressing existing non-compliance issues. You will most likely also want to review your business strategy and financial analysis to understand what it will mean to do business under Obamacare, now that you understand that the requirements apply to you and each of the businesses in which you have ownership.
Proactively addressing non-compliance is the only reasonable strategy for moving your business forward. Lack of compliance can could result in heavy fines and penalties, put your business and personal assets at risk, and could cost you your businesses. Also, the IRS will be examining each situation to see if the multiple businesses were created in an attempt to circumvent the law. Where they make the determination that businesses were created in an attempt to “defraud” or otherwise “avoid” compliance expect to see civil and criminal consequences.
Lea A. Strickland, MBA CMA CFM GMC is President/CEO of F.O.C.U.S. Resources and provides strategic, financial and operational advisory services to businesses seeking to maximize financial performance. She can be reached at 919.234.3960 or Lea@FOCUSResourcesInc.com
