The legislation features a number of requirements and exclusions that apply only to small businesses; however, the new rules rely on different measures to determine which firms are considered “small,” and several are scheduled to fluctuate in the years ahead.
Some say the inconsistency adds an unnecessary layer of complexity to the law, confusing many employers and making it difficult to gauge the legislation’s impact on Main Street.
“It leads to a lot of head scratching and heartburn for business owners,” Kevin Kuhlman, manager of legislative affairs at the National Federation of Independent Business, said in an interview. The varying definitions make “it difficult for employers to know which of changes and requirements apply to them.”
Next month, for instance, small-business owners will gain access to new online health insurance marketplaces, known as exchanges, where they will be able to select from an array of plans from various insurers. In order to target small businesses, lawmakers reserved access to the exchanges to firms with fewer than 100 employees (though states are allowed to set the limit lower for the first two years).
That threshold is significantly lower than the ones set by the Small Business Administration, which often uses a 500-employee ceiling to define “small business” but offers government-backed loans to firms with as many as 1,500 workers, depending on their industry.
Consequently, many companies that qualify as a small business by SBA standards will not be allowed to use the small-business insurance marketplaces.
An even larger number of firms that are considered small by most federal standards will not qualify for one of the most important small-business provisions in the law — an exemption from what is known as the “employer mandate.”
Starting in 2015, large employers must start providing sufficient health insurance to their workers or pay steep tax penalties, while small firms are waived from the mandate. Rather than setting the exemption cap at the SBA’s 500-employee mark or the insurance exchange’s 100-employee mark, though, lawmakers placed the cap at 50 workers.
“A lot of business owners have that 50 number stuck in their heads, because the mandate has been front and center,” Kuhlman said. “Some don’t realize that there are other eligibility requirements above and below that.”
Kuhlman pointed out, for example, that the law also includes a number of tax breaks designed to help small-business owners pay for health coverage, which have covered up to 35 percent of employers’ health costs since 2010 and will increase to 50 percent in 2014.
The size limit for the full tax credit? 10 employees. A partial tax credit? 25 employees.
“We’re in that weird doughnut hole between one limit and another,” Fred Callahan, owner of Colony Papers in York, Pa. His company has around 40 employees — small enough to be exempt from the mandate but too large for a tax break.