Labor Costs and the Affordable Health Care Act - Sole Proprietors

Many employers have focused like a laser beam on the penalty clause for not providing minimal essential coverage.  These employers may be subject to a penalty.  The penalty is significant and employers need to carefully craft a strategy to avoid the cost associated with non-compliance.

For sole proprietors with a single restaurant, the penalty most likely will not apply.  There is no penalty for not covering part-time employees.  Most server staff employees work part-time on high volume shifts starting on Friday and ending on Sunday.  The kitchen may also employ part-time general help for the busy shifts.

Full-time employees, including management, make up the backbone of the restaurant team.  Taking the view of avoiding the penalty, sole proprietors would need to have at least 31 full-time people with none covered to be subject to any penalty.

The penalty provision requires employers with more than 30 full-time employees who are not offered health care coverage to pay a penalty.

Penalty= (Total number of uncovered full-time employees - 30) x $2,000

For example, a restaurant with 33 full-time employees who were not offered coverage would pay $6,000.  This works out to $182 per full-time employee or nine cents per hour.

Let's take a look at employee morale.  Savvy companies, who realize they have an opportunity to attract top talent, will offer key employees better pay and health insurance coverage.  It's not too difficult to imagine hard working part-time staff striving to attain full-time status.  Health care coverage and a bigger paycheck are their reward.

What about growing beyond the first location?  Will the new law inhibit small business growth?

As a company grows from a single restaurant into a small regional chain, management should review their organization options.  Often chains use separate corporations or LLCs to limit the risk of one restaurant weakening the financial health of the entire group.  Every restaurant is a separate company.  The management group is also setup as a separate company.  This same risk avoidance strategy works well with the health care act's penalty clause.  Few restaurants need more than 30 full-time employees.