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Impact of ObamaCare on Small Business

President Obama signed the Patient Protection and Affordable Care Act (“Act”), or ObamaCare, as it is more commonly known, into law on March 23, 2010. The Act intends to decrease the number of Americans who do not have medical insurance. Additionally, the Act aims to decrease the overall cost of healthcare in the nation. One of the primary provisions of the Act requires employers that have at least 50 full-time employees to provide healthcare benefits for their employees. If such employers fail to provide benefits adequate under government standards, the employers will have to pay a fine. In National Federation of Independent Business v. Sebelius, the plaintiffs questioned the constitutionality of ObamaCare, arguing that the federal government did not have the authority to require businesses to provide health care. Ultimately, the Supreme Court of the United States upheld the constitutionality of ObamaCare.

Although, ObamaCare will not go into effect until 2014, it is already starting to have an effect on small businesses in America. Indeed, the Treasury Department and the Internal Revenue Service released regulations, in December of 2012, that require companies that average 50 or more full-time employees to provide healthcare or pay a fine now.

The way small businesses structure in 2013 could determine their status under ObamaCare next year. Companies have considered limiting growth to eliminate the need for additional employees. Accordingly, employers are choosing to outsource work instead of hiring full-time employees in order to avoid the cost of providing government-approved health care. Also, employers are hiring employees only on a part-time basis to avoid meeting the standard under ObamaCare.

This may prove to be a problem in light of the IRS’s dedication to audit employers who improperly label employees as “independent contractors” to avoid paying taxes on wages. Therefore, small businesses with close to 50 full-time employees need to be careful with how they choose to categorize employees. An IRS audit that reveals improperly categorized employees could hold an employer liable for back taxes and penalties for failing to provide the appropriate healthcare benefits.

The potential for incorrectly categorizing employees is increasingly unclear because an employer’s definition of an independent contractor may be different from the government’s definition. The vague IRS guidelines take into account: (i) how much control the employer has over the employee, (ii) how permanent the employment is, and (iii) how the employer pays the employee. Given the confusion that these standards may generate, employer can file certain forms with the IRS to determine if an employment relationship properly constitutes contract employment.

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