What does “small” really mean, anyway? Breadboxes are small. And Goldilocks’s first pick of chairs. And some businesses, too.
And as it turns out, the size of a small business is considerably more important than the size of a breadbox. In our last blog, we explained that “small businesses” get certain protections under the ACA, or Obamacare. Other businesses must pay a penalty if they do not provide their employees health insurance – this is called the “employer mandate.” But small businesses are exempt from the employer mandate. They do not have to pay the penalty.
So how small is a small business? Does yours count? That question may be worth quite a lot of money.
What Is a Small Business?
The definition of “small business” generally varies (a lot) by industry, but in this case, it’s definite. For the purposes of Obamacare, you are a small business if you have fewer than 50 full-time equivalent employees (FTEs). Count up your full-time employees; if there are 49 or fewer, you’re in the running. But watch out! You may not realize how many full-time equivalent employees you actually have.
What Is a Full-Time Equivalent Employee (FTE)?
The rules about how to calculate full-time equivalent employees for the purposes of Obamacare may surprise you. For instance, did you know that even if you’re a business that employs only part-time personnel, you may have FTEs? Check it out:
- FTEs are employees who work an average of 30 hours a week for your company for more than 120 days out of the year.
- Variable hour or part-time employees might be FTEs if they work more than an average of 30 hours during a given time period called a “measurement period.”
- Your part-time workers who are not FTEs count in another way; they are part of the “full-time employee equivalent” calculation.
- To determine your full-time employee equivalents, add up the number of hours your employees work, collectively, and divide by 2,080. That number represents FTEs. For example, you have 5 full-time employees who each worked 2,080 hours over the last year, plus 3 part-time employees who each worked 1,040 hours over the last year. The total hours worked would equal 13,520 (5 x 2,080 plus 3 x 1,040). Your FTEs would equal 6 (13,520 / 2080 = 6.5, rounded to the next lowest whole number).
Seasonal workers don’t count as FTEs, and neither do contractors, although again…be careful. The IRS says that American companies aren’t great at determining what kind of workers are actually contractors.
And that’s why we do what we do. HealthMarkets helps small businesses figure out their legal size according to the ACA, how many FTEs they really have and what products are best for them. That information is the key to saving a ton of money on their health insurance.
Instead of leaving your employees high and dry, we can help both you and them determine how to get their healthcare needs met in a way that’s affordable for everyone. It’s like a magic trick — we just keep on pulling rabbits out of the hat. Or the breadbox. Or wherever.