The Time is Now

According to benefits consultant Mercer, almost half of retail and hospitality employers don’t currently offer health coverage to all of their full-time employees. The Kaiser Family Foundation found that only 28 percent of companies that employ a large number of workers making $24,000 a year or less, such as restaurants, offer health benefits. Yet the 10 largest food chains in the United States do, and Starbucks offers health plans for employees who work 20-plus hours a week.

But that was before the Affordable Care Act (ACA). How will your health benefits strategy change?

Operational issues such as rising wholesale food prices and a drawn-out economic recovery put cost pressures on restaurant operators. One-third of a restaurant’s sales go toward labor costs, and now healthcare reform is here. You need to prepare for the changes, abide by the law, absorb new costs and, most importantly, get moving. Every minute that passes can affect your ability to stay ahead of the changes and manage the outcomes.

Whether you call it “Obamacare,” “The Healthcare Law” or its official name, the “Patient Protection and Affordable Care Act of 2010,” it will impact your business.

New W-2 Requirements

Tax form W-2 is used to report employee wages and withholding. Beginning with this tax year, employers filing more than 250 W-2 forms are required to also report the total cost of group health coverage.

According to the IRS, “There is nothing about the reporting requirement that causes or will cause excludable employer-provided health coverage to become taxable. The purpose of the reporting requirement is to provide employees useful and comparable consumer information on the cost of their healthcare coverage.” In 2014, all employers will have the reporting requirement.

Flexible Spending Account Cap

Under the ACA, an employee’s contribution to flexible spending accounts is limited to $2,500 beginning Jan. 1, 2013, down from $5,000. Additionally, stricter rules are in place on how these pre-tax dollars can be used.

Employer Mandate

This is the big one. In 2014, the ACA will require large employers with 50 or more full-time or full-time-equivalent (FTE) workers who average 30 or more hours a week to provide health insurance or face a penalty starting at $2,000 per employee, after the first 30 workers.

If the business offers just a minimum level of health insurance or coverage is deemed unaffordable, it must pay $3,000 for every worker who receives a federal tax subsidy to help him or her pay for mandated coverage.

The FTE calculation is based on the number of people employed by the organization and an average of hours employees work in a week. Your 2014 full-time workers’ calculation will be based on 2013 averages. The look-back period is considered one year, but final guidance from the federal government and the IRS is forthcoming, including on how to consider employees hired in 2013.

Seasonal employees employed 120 days or fewer are excluded from the 50 FTE calculation. However, in 2014, large employers must offer health insurance to seasonal employees if they work full-time in a given month (30 or more hours a week).

Franchise operators should check with their corporate offices as soon as possible regarding staffing issues and compliance requirements to plan accordingly this year.

Concerned with higher healthcare costs, restaurant and tavern owners are considering reducing workers’ hours, shifting some full-time staff to part-time status. With that model comes added risk of higher turnover, additional training costs and lower morale, as well as the potential impact on service and customer experience. The restaurant industry relies heavily on part-time workers for flexibility and payroll savings. Many will continue to limit part-time workers’ hours, adding additional part-time employees as needed.

Restaurant operators who are near the 50 FTE threshold may delay growth plans. Some – thinking solely of cost-effectiveness – are weighing providing coverage versus paying fines. A final consideration: The fine isn’t tax-deductible, but healthcare coverage is.

Small Employer or Large?

More than seven of 10 eating and drinking establishments are single-unit operations, and 93 percent have fewer than 50 employees. Thus, it would seem these organizations are exempt from the healthcare law.

However, if two or more establishments have a common owner, they might fall under the “common control” clause in the tax code. For ACA considerations, all employees may be combined as a group to determine whether or not the employer meets the 50 FTE threshold.

Small Business Tax Credits

Beginning this year – and retroactive to Jan. 1, 2010 – small establishments might be eligible to receive a healthcare tax credit for providing coverage to their employees.

The new small business healthcare tax credit is worth up to 35 percent of healthcare premiums the business pays, increasing to 50 percent in 2014. Eligibility requires that the business has fewer than 25 FTEs whose average annual wages are below $50,000, and that the employer pays at least 50 percent of the cost of healthcare coverage for its workers.

FICA Tax increase

Beginning in 2013, employers are responsible for withholding an additional 0.9 percent on wages above $200,000 to cover a Medicare tax increase. Self-employed business owners are also affected.

Exchanges and Notification

State health exchanges become operational on Oct. 1, with coverage beginning Jan. 1, 2014. Employers must notify employees of the existence of the public exchanges, and that as of Oct. 1, employees can go online, compare plans from several carriers and purchase health insurance, if desired. Small Business Health Option Programs (SHOP) exchanges might be of interest to smaller restaurants as they may help lower costs and improve plan choice.

Although public health exchanges are a new option for many employers, private health exchanges have existed for years and generally target smaller companies. That, too, is changing, as Darden Restaurants announced some 45,000 of its employees would be eligible to purchase insurance through a private health exchange at the beginning of the year.

A Big Employee Base

Even if some establishments cut staff in response to the ACA, restaurants are projected to employ 13.1 million people this year, up 2.4 percent from last year, and might add more than 1 million new positions in the next decade. This is an employee base that represents 10 percent of the country’s total workforce, and all of whom – whether by individual or employer mandate – will require health coverage.

Restaurant and bar owners need to stay on top of ACA refinements, process changes and other developments that might affect tax liability, both now and in future years as the healthcare law provisions are put completely in place. Work with your tax advisor and employee benefits provider now to learn more about these and other new taxes, fees and requirements of the healthcare reform laws.

Kelly Rodriguez is a partner in the audit practice at Grant Thornton LLP. She can be reached at 303-813-3944 or at kelly.rodriguez@us.gt.com.

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