Can You Be a Big and a Small Business at the Same Time?

Yes, if you check the definitions under the Affordable Care Act.  Definitions matter because they govern what rules you must follow. The Affordable Care Act has conflicting definitions for different purposes.

  • Employer mandate to provide health coverage. Here you’re a large employer if you have more than 50 full-time employees on your payroll. If you do, then starting in 2014, you’ll have to provide affordable health coverage or pay a penalty (“play or pay”) (it’s much more complicated than this brief statement). By exclusion, you’re a small business exempt from this mandate if you have 50 or fewer employees.
  • Health exchanges. Here you’re a small business if you have more than one but fewer than 100 employees. If so, you can use the Small Business Health Options Program (SHOP) to offer a menu of health coverage plans to employees. Unfortunately, however, SHOPs were supposed to be open on October 1 of this year to enable employees to select their coverage for 2014; employees have only a single plan until 2015. Note: Just to confuse things even more, states can limit participation in these exchanges to up to 50 employees until 2016.

Thus, if you have 60 employees, you must comply with the employer mandate in 2014 but you can put employees in the SHOPs if you don’t want to use private health insurance. Make sense?

Other federal laws
The Affordable Care Act isn’t the only place where definitions for small business are confusing. The Tax Code has more than a dozen different definitions for different purposes. Like the Affordable Care Act, some are based on the number of employees. However, some definitions are based on gross receipts, some on the value of assets, and one on the amount of equipment purchased in the year.

For your convenience, here is a partial list of federal laws that tie the definition of small business to the number of employees. If you have fewer employees than the number listed, you are exempt from complying with the law.

  • Age Discrimination in Employment Act: 15
  • Americans with Disabilities Act: 20
  • COBRA: 20
  • Equal Pay Act: 2
  • Fair Labor Standards Act: 2
  • Family and Medical Leave Act: 50
  • Title VII of the Civil Rights Act: 15

State laws
States often adopt more stringent definitions to force smaller companies to offer benefits and rights to employees than otherwise required under federal law. For example, a number of states have “mini-COBRA” requiring companies that offer health coverage to extend continued coverage if they have as few as two employees. Check your state’s laws carefully to make sure you are in compliance.

Bottom line
Don’t assume you are a small business because you don’t view yourself as large. The government may put you into the “large business” category for some purposes even though you are still a small business. When in doubt, consult with a knowledgeable attorney on the area you are concerned about.

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