Friday, November 22, 2013

The Afforable Care Act (AKA Obamacare) - How it affects the self-employed and small business owners



Most of my clients are small business owners.  In addition to voicing frustration about cancelled health insurance plans and exchange failures, many of them have expressed their confusion about how the new health care law impacts their businesses.  There has been significant news coverage regarding the very lengthy text of the Affordable Care Act (“ACA”). You may be surprised to learn that in addition to the law itself, there are thousands of regulations being promulgated in connection with it.  The result is a complicated web of legal requirements. Regardless of your thoughts about the functionality of the healthcare.gov website or the exchange websites, if you are a self-employed person or small business owner, you should be aware that the ACA has provisions which will impact your business. The following is neither a comprehensive overview nor intended as legal advice, however it should provide you with some helpful information as you navigate this new law and the regulations that flow from it.

Some of the below information applies to both small businesses and self-employed persons so this article addresses both. Small businesses owners should review both sections.  The ACA is rolling out in stages between 2013 and 2014. 

SELF-EMPLOYED

Some of the provisions that may impact self-employed individuals include:

Provisions Affecting Individuals
In 2014, the Individual Shared Responsibility provisions require each individual to have health insurance coverage, qualify for an exemption, or pay a fee/fine [1] when filing their federal income tax return. Individuals will not have to make a payment if coverage is unaffordable, if they spend less than three consecutive months without coverage, or if they qualify for an exemption for several other reasons, including hardship and religious beliefs. Under the ACA “minimum essential coverage” required includes: Employer-sponsored coverage (including COBRA and retiree coverage), coverage purchased in the individual market, Medicare Part A coverage, Medicaid coverage, and various other government plans applicable to veterans and children, etc.

Individual Insurance Marketplaces
Speaking of controversy:  As we are all well aware, the roll-out of the online insurance marketplace websites has been near disastrous.  It is unclear whether they will be fully functional in time to meet the deadlines.  As of the date of this post, the Covered California site is not functioning properly.  The marketplaces for individuals and small businesses should be in place by January 1, 2014.  Open enrollment was supposed to commence on October 1, 2013. The individual health insurance marketplaces should offer four different levels of benefit packages. Individuals and the self-employed persons may qualify for individual tax credits and subsidies on a sliding scale, based on income. 

Medicaid Expansion
If you are self-employed and reading this, you likely are not eligible for this type of coverage.  However, each state operates a Medicaid program that provides health coverage for lower-income people, families and children, the elderly, and people with disabilities. The eligibility rules for Medicaid are different for each state, but most states offer coverage for adults with children at some income level.  In addition, under the ACA, states have the option to expand Medicaid eligibility.

New Tax on Investment Income
Commencing January 1, 2013, a new tax (about 4%) will be assessed on persons earning net investment income.  Income subject to this tax includes income from certain capital gains, dividends, rents, royalties, and interest.  It applies to taxpayers with Modified Adjusted Gross Income over $200,000 for people filing single and $250,000 for married people filing jointly. I suspect my clients are not fans of this new tax.

Small Business Owners

For people employing fewer than 25 employees, the following is a summary of some key items that affect you and your business:

Health Care Tax Credits
A small business Health Care Tax Credit may be available to your company if you employ “low- and moderate-income” employees[2].   Generally, businesses that have fewer than 25 full-time employees and that contribute 50% or more toward their employees’ health insurance premiums may qualify for a small business tax credit of up to 35% to offset some of the costs of insurance.  In 2014, this tax credit increases to 50% and is available to “qualified” small business employers that participate in the Small Business Health Options Program (SHOP).

The SHOP program is open for enrollment now and can be found here:

I have not tested the site and I have no information as to whether it has the same functioning problems that exist with the individual healthcare.gov site. Employers with up to 50 employees should be able to access and use the SHOP site. 

Mandatory Employer Notice to Employees
Hopefully you didn’t miss this deadline! On October 1, 2013 all employers covered by the Fair Labor Standards Act (employers with over $500,000 in revenue a year) were required to give written notice to their employees about the ACA Health Insurance Marketplace.  This notice also must be provided to all new hires after October 1, 2013.  The Department of Labor has posted model form notices that you can use.Cut and paste this link for reference: http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf

Increased Medicare Withholding for Higher Wage Earners
Commencing January 1, 2013, the ACA increases the employee portion of the Medicare Part A Hospital Insurance withholding by .9% (up from 1.45% to 2.35%) on single filer employees with incomes of over $200,000 and $250,000 for employees who are married filing jointly.  It is your obligation as an employer to withhold this additional tax, so check with your payroll company for compliance. The employer portion of the tax will remain at 1.45%.

Reduced Waiting Period
If your company decides to offer coverage, employees will no longer be required to wait more than ninety days before their coverage commences. 

New IRS Reporting Requirements
In 2015, the ACA requires employers who sponsor employee self-insured plans to submit new reports to the IRS detailing information for each covered individual. Employers should file their first report in 2016.  The reporting rules are not yet completed so be sure to keep abreast of this requirement in the coming year.

The ACA is riddled with issues and problems. The regulations flowing from it continue to grow and change-thereby impacting your business. It would be wise to request periodic updates from your accountants, payroll vendor, insurance representatives and attorney(s) so that you do not miss, or continue to miss, reporting and/or notice requirements as they arise.


[1] Whether this fee is a fine, tax or penalty is the subject of extensive legal and political debate.
[2] Average annual wages of $50,000 or less

Tuesday, February 12, 2013

Uncertain Times- Make Certain Agreements


It seems in these uncertain economic times that more individuals and small businesses are forgoing legal advice and formal written agreements.  Don’t do it. Don’t do a handshake deal. Don’t assume the other party will perform. Don’t assume you can work out the details as you go. Don’t trust that your prior dealings with any person or business are any indication that you can proceed in any transaction without a proper written contract. You may need the deal, but you don’t need the fallout if it falls apart and you have nothing in writing to protect you or your business.

There, I said it. That’s the deal.

Now let me explain. I agree some business opportunities are fleeting and risks sometimes must be taken. However, if a business deal or transaction has any real value to you or any potential risk, it is imperative that you properly document every critical aspect. Why gamble on the good faith of another party or the proper interpretation of your agreement by a court? Even if not acting in bad faith, sometimes well-meaning parties to a handshake deal simply do not have the same understanding or expectations. Furthermore, sometimes the judge assigned to your matter may not have the time or expertise to properly interpret your “agreement”.  If you or your attorney prepare a written agreement, a good agreement includes at the very least the following:

Proper identification and understanding of the parties. Seems simple enough? It’s not. Who is the entity with whom you are contracting? Where was it formed and where does it do business? You need to know exactly with whom you are contracting. More often than not I see agreements that define a party my clients had no idea was involved. In the sales and negotiations process, you are sometimes distracted by the deal points and then presented with a contract that is tantamount to bait and switch. Pay attention and have your attorney run a public records search and advise you about the parties. Are they solvent? Have they been sued for breach of contract or fraud? If applicable, do they have many poor consumer or vendor reviews? Are they really someone with whom you want to do business? Don’t overlook these details. If it’s a big enough contract, I have been known to recommend even further investigative work-up. To date, I have not regretted any such instance. It always proves valuable and informative.

Term. How long will the agreement last? Will it renew and if so, how? My experience is that disputes may arise when the parties do not have the same understanding of the term of the agreement or how it can be renewed. Be clear and specific in setting forth the term.

Very clear description of the duties and responsibilities of the parties. Again, this may seem obvious or simple but it is not. This is where the most disputes arise. This is where we look for the “meeting of the minds”.  It’s your obligation to carefully analyze and set forth your expectations of the other party and to verify that they understand those expectations. Similarly, it’s your chance to spell out precisely what you believe are your responsibilities and obligations. What are the deliverables? What are the metrics that must be achieved? Is there an opportunity to cure a defect if delivery dates or deadlines are not met? What are the payment terms? What specific triggers are involved? This is your time to use your critical thinking skills. Consider every angle and especially consider every possibility for a conflict and how it will be resolved. You can dictate the future of your dealings. Don’t leave the fate of your business or this deal to speculation.

Representations and warranties. These are tricky. Here, a warranty is not what most view as the traditional guarantee of a product’s performance. Rather, it is an affirmative representation of facts by a party. If you did not draft the agreement, verify that all representations are correct. If not, you could be setting yourself or your company up for a fraud claim. If you draft the agreement, be sure to include basics such as the legal standing of the parties to enter into this agreement and the fact that doing so does not violate any laws or other agreements, etc. These provisions should survive the termination or end date of the contract. If the other party makes a misrepresentation or breaches a warranty then the ramifications could present themselves well after the termination of the agreement. Sometimes, you need to be able to seek relief from the party or a court at a later date. Don’t foreclose on that opportunity.

Indemnity. This is a week long seminar unto itself. However, suffice it to say that if you are drafting the contract you want the other party to indemnify and defend you in the event you are sued or are required to defend against a claim based on their actions. If you did not draft the agreement, be very careful of the indemnity language. Larger corporations notoriously strap small businesses with oppressive indemnity language that requires them to pay even when there has been no actual improper conduct by the small business-there merely needs to be an allegation. Such a provision can bankrupt a small business, especially if the claim involves patent infringement. You are strongly recommended to seek legal counsel to review any indemnity provisions.

Choice of law/venue. If you draft the contract, then you may want to provide that your state’s laws apply and that any dispute is governed by the laws of your state. This will save you significant time, travel costs and ambiguity in the event of a dispute. If the party drafts the agreement and is located in another state, they may include a provision that specifies that the laws of a state other than your state will be applied to your agreement and further that if there is a dispute- that you are required to come to their state to sue or defend yourself. That can be incredibly costly (and cost prohibitive) for individuals and small businesses.

Obviously, there are many issues you can and should consider and the above is not exhaustive. I am not your attorney and no one article can substitute for case-specific legal advice, but it’s my hope that that these factors will put you in the correct frame of mind if you currently are commencing a new business relationship.  Feel free to email me at shipplaw@cox.net if you need further input or would like an attorney to draft or review your agreement.