To Hire or Not To Hire?

Health care reform adds cost per employee, but the HIRE Act provides potential savings.

As a contractor, you have a lot at stake in the health care bill and its implementation. For companies that provide health insurance at the proper levels, it may not be that negative. However, those with 50 or more employees offering "inadequate" plans will be fined between $750 to $3,000 per employee. (Now, won't that help create new jobs if you currently employ 40 people?) The only good news is the start date of 2014.

Small employers with fewer than 25 employees will receive tax credits for purchasing group health insurance for their employees. This program starts to phase in this year. What happens to companies with 25 to 50 employees is not clear. But I suspect since everyone has to have coverage, employees can purchase insurance through one of the insurance exchanges being created if group insurance is not offered.

One other feature that starts right away is dependent coverage up to 26 years of age. In addition, group health plans cannot impose preexisting condition exclusions for children under the age of 19.

Added costs may hurt hiring

Most of the bill provisions start in 2014, but I can hear the wheels turning already. Contractors with less than 50 employees don't have to offer health insurance, leaving employees to purchase their own.

Right now, many of you who are unlikely to carry 50 employees throughout the year are thinking the independent contractor rules apply. I don't think that will work. I recently talked to a company that brings people in for the "season." It was told it will be fined $750 per employee because it has more than 50 employees at some time during the year.

Of course, if you are a union shop, you may have a "Cadillac plan" problem where excessive premiums are taxed 40% over the stated limits. However, the unions were able to push this off until 2018.

If you think you're off the hook because you're offering group insurance, think again. If you have even one employee who gets a premium tax credit, you have to pay the lesser of $3,000 for each employee receiving a credit or $750 for each full-time employee. But again, this program starts in 2014.

No matter how you look at this program, it is going to cost you money. In addition, it kind of levels the playing field between the union and non-union shops.

What I see happening with this is the following:

  • Management will think twice about exceeding the 50-employee limit.
  • The cost will be pushed down to employees through lower wages.
  • Costs will increase.
  • Employees will be encouraged to purchase insurance via the exchange.
  • Those with insurance will see cost increases to cover the cost of the plan and the $260 billion in fees charged to various health care related companies.

HIRE Act restores hiring incentives

Still, there is some good news. President Obama signed the HIRE Act on March 18, which provides incentives to get people working again. These include:

Payroll Tax Exemption: The Act exempts employers from paying the employer share of the Social Security employment taxes (6.2% of the first $106,800 of wages) for wages paid in 2010. The new employee cannot have worked more than 40 hours during the 60-day period ending on the date of hire, and cannot replace another employee unless the replaced employee left voluntarily or for cause. If both of these requirements are not met, you cannot get the reduced payroll tax benefit.

Incentive to Retain Employees: Employers can also get a business tax credit with respect to each retained employee. The credit is the lesser of $1,000 or 6.2% of the wages paid to the retained employee during the 52-week consecutive period.

As you can see, these incentives encourage employment sooner rather than later.

On December 31, 2009, the Small Business Expense program - which allowed a 100% write-off of qualified property with a phase-out if the amount of qualified property exceeded $800,000 - expired. The HIRE act extended this program through December 31, 2010.

And to make your life even more interesting, there will be new reporting requirements for payments made to individuals and companies. Part of this program requires new ID cards that have to be checked with the government before you engage these entities to do business with them.

There is nothing like a complex government program to make life interesting - especially with 17,000 new IRS agents getting trained to monitor the program, among other things.

Garry Bartecki is the managing member of GB Financial Services LLP and VP Finance for the Associated Equipment Distributors. He can be reached at (708) 347-9109 or [email protected].