Large companies (those with more than 50 employees) become subject to a new health care mandate starting on January 1, 2014. These companies must provide certain levels of health coverage or pay a penalty. Some businesses that have crossed the 50-employee threshold are planning to pay the penalty because it is much, much lower than the cost of mandated health coverage. The Wall Street Journal reported that one company with 102 employees figured the penalty to be $140,000 compared with $500,000 for coverage. It's unfortunate that smaller companies are looking for ways to avoid the mandate, but the reality is that many won't be able to stay in business if they are forced to provide health coverage. For companies near the cusp that want to avoid the mandate, there are certain strategies to use.
Once an employee works 120 hours per month (which works out to about 30 hours per week), he or she is automatically treated as a full-time employee for the purposes of the more-than-50-FTE-employees threshold. Those who work fewer hours have only their actual hours taken into account in figuring whether two or more workers add up to a full-time employee (find details here).
Many service industries with lower-paid workers are limiting hours to fewer than 30 a week, hence the term "29ers." But these companies aren't alone; colleges have restricted the hours of adjuncts for the very same reason. If you find you are nearing the threshold and cannot afford the coverage required of a large employer, you may be forced to take similar action.
Temporary workers are the employees of the agencies that send them on jobs. The companies that use their services pay a fee to the agencies, but are not employers to these workers.
When you're in a busy season or find that the workload is growing, consider using temps to fill your need rather than taking on additional employees. Today, temp workers are not restricted to clerical work or manual labor, as was the case in the past. Now, you can find professionals and other skilled workers through temp agencies to avoid adding people to your payroll count.
For some people, the term "outsourcing" means going overseas for help. However, it also refers to using independent contractors to handle the tasks you need to get done. Using independent contractors does not make you their employer, so you don't have to pay employment taxes or provide workers' compensation, and they aren't counted toward the employer health care mandate.
You must be careful in using independent contractors. You cannot simply attach the 'independent contractor' label to a worker to achieve the results you want. The determination of whether a worker is an independent contractor or an employee hinges on the degree of control you exercise. In general, if you provide the tools for the job and say when, where, and how it gets done, the worker is your employee.
The IRS is aggressively looking at worker classification in order to increase its revenue collections. IRS resources can help clarify your worker classification. What's more, other government agencies often look into worker classification when workers being treated as independent contractors complain about such matters as unemployment, workers' compensation, or payments below minimum wage (all benefits exclusive for employees).
If you want to stay small, you can use any or all of these strategies to help you grow your business without increasing the number of employees on your payroll. In doing so, however, consider the impact it has on your business activities, your company culture, and your bottom line.