Owners start to navigate Affordable Care Act

How will the Patient Protection & Affordable Care Act affect you? Many small business owners are asking themselves that, especially if they own restaurants.

Rocco Whalen, chef/owner of Fahrenheit in Cleveland and a second unit about to open in Charlotte, NC, recently hosted a short crash course in the law for Cleveland restaurant operators and other entrepreneurs.

Grappling with the rollout of the Patient Protection & Affordable Care Act? Send questions to [email protected], and we'll forward them to Swathi Ravichandran, associate professor of hospitality management at Kent State University. She will help you understand the employer's responsibilities as outlined in the act.

Swathi Ravichandran says the new law affects everyone. Photo: Megan Rowe

Whalen invited Swathi Ravichandran, associate professor of hospitality management at nearby Kent State University, to explain some of the nuances of the notoriously complex law. Ravichandran launched into her analysis of the act with two disclaimers: First, she reminded the audience that she is not a lawyer. Second, she observed, “if anybody is claiming to be an expert on this law, they are lying.” Her answers to some fundamental questions, and the additional questions they raised among the restaurant owners present, suggest how complicated the process of implementing the law will be.
 
Who will be affected by the law?

“Every single person is impacted by this law,” Ravichandran said.

The signup period for individuals had a rocky kickoff Oct. 1 and will be extended to March 1, 2014. Employers with 50 or more full-time equivalent employees (FTEs) must offer affordable, minimum essential coverage to all full-time employees and their dependents beginning in 2015.

Full-time employees are defined as those who average at least 30 hours a week in a given month, added to the result of a formula that accounts for staff members who work fewer hours. In addition, Ravichandran said, part-timers who average more than 130 hours a month are considered full-time.

To determine the total of FTEs for a single month, add (1) the number of employees who worked 130 hours or more that month to (2) the total hours of all other workers, divided by 120.

Employers can review each worker’s schedule for a period of 3-12 months to determine the average number of hours worked—Ravichandran recommended using the longer period, since it will tend to lower the average hours per week.

It’s important to remember that only full-time staffers must be offered coverage, and employers only need to offer the coverage—the employee is not required to accept. Part-timers are only factored in to determine whether a restaurant has 50 FTEs.

What’s the timeline?

Employers who aren’t already notifying their workers about the availability of coverage and the penalties for refusing it need to get moving. The deadline to start doing so was Oct. 1, 2013. You can use a standard model notice available at www.dol.gov/ebsa/healthreform

Regardless of whether they are required to offer health coverage, Ravichandran said, all employers must inform employees of the existence of the marketplace/exchange, how they are eligible for a premium tax credit and how they are ineligible for any employer contribution to a health plan if they purchase a plan on their own.

The employer mandate goes into effect on January 1, 2015. Technically, that means employers must determine whether they meet the 50-worker threshold by the end of 2014, but “I would be cautious” and begin making those calculations as soon as possible, Ravichandran said. Why? The penalties for failure to comply can be steep.

What else restaurant operators need to know

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What about owners of multiple restaurants, with each employing fewer than 50 FTEs?

According to Internal Revenue Service rules, Ravichandran said, they must be lumped together for the purposes of the Affordable Care Act. The agency says employees in each of the restaurants should be aggregated to determine the number of FTEs. Ravichandran suggested consulting a tax expert on this question.

What qualifies as “affordable” coverage?

The employee’s contribution cannot exceed 9.5 percent of household income. But because determining total household income can be difficult, the law includes a “safe harbor” provision that allows employers to use Box 1 of workers’ W-2 forms to calculate the employee share. For obvious reasons, “this underscores the need to ensure people report tips,” Ravichandran explained.

Are there any advantages for smaller employers who want to join an exchange?

If you have fewer than 25 FTEs, you pay at least 50 percent of the cost of their coverage through the Small Business Health Options Program exchange and you pay average wages of under $50,000, you can realize a tax credit. The amount of the credit is based on the number of employees and their salaries. Employers with fewer than 10 FTEs and average salaries of less than $25,000 per FTE qualify for the highest credit.

What are some of the penalties an employer faces for failure to comply with the law?

Penalties are calculated using this formula:

(Number of employees in the firm – 30) X $2,000.

So, a restaurant with 60 employees would be fined 60 — 30 = 30 X $2,000 = $60,000.

There are also similar penalties for not offering affordable coverage. 

Employees who refuse the coverage will also be fined. The first-year penalty is $95, or 1 percent of household income, but that figure will rise dramatically in 2015 and 2016.

“A lot of restaurant operators across the country are saying that they will take the penalty,” Ravichandran noted.

Does this law unfairly impact restaurant owners, and what are some ways to deal with it?

Ravichandran confirmed that the foodservice business is disproportionately affected by the affordable care act, in part because it employs more part-time workers who are deemed full-time for coverage purposes. Nearly 21 percent of restaurant employees work 30-36 hours a week, compared to 8.9 percent across all industries.

But she noted that solutions—such as cutting hours, several restaurants sharing staffers to cap their hours at each one, to a refusal to hire new full-time personnel—add burdensome record-keeping and HR problems and have caused some restaurants and chains PR headaches.

Several restaurant owners at Ravichandran’s presentation suggested adding a surcharge to all checks and explaining its purpose on the menu. Ravichandran said she has heard of add-ons ranging from 3 to 10 percent, and she thinks some restaurant guests would be more willing to pay the surcharge if its purpose is spelled out on the menu.