Crunch time at small businesses as healthcare demands loom

It's crunch time for thousands of small business owners who must comply with requirements of the Affordable Care Act for the first time.

Companies with 50 to 99 full-time employees must offer affordable insurance to employees and their dependents starting Jan. 1. They must also file tax forms with the government by Jan. 31 detailing the cost of their coverage and the names and Social Security numbers of employees and their dependents. While companies of all sizes are subject to the law must file the forms, smaller businesses without big staffs to handle the paperwork may have to hire someone to do it—at a cost of hundreds or thousands of dollars.

"It's probably going to be a big nightmare for a lot of businesses," says David Lewis, president of OperationsInc., a human resources provider based in Norwalk, Connecticut. He expects his company's business to be up 20% this year as businesses seek help to comply with the law.

The enrollment period for buying insurance starts Nov. 1. All the new requirements are likely to take many small business owners by surprise, says Bob Wheeler, a certified public accountant in Los Angeles.

Companies that don't currently offer insurance must sign up for policies that meet the law's standards for minimum coverage and that employees can afford. Finding the right policy can be a steep learning curve.

Consultants 2 Go, which has nearly 100 employees, hired a human resources executive this year to do the research into the different plans. The owners of the Newark, New Jersey-based marketing company want to give their staffers good insurance, but are worried about the cost.

"We needed someone to spend 24 hours a day reading through all this stuff," co-owner Sandi Webster says. "We have to make sense out of this."

Even companies that already offer insurance may be in for a surprise if their current plans don't meet the law's requirements, says Lewis, the OperationsInc. president.

"For some businesses, it's going to be more expensive than the plan they've offered and that they hope to renew," he says.

Owners must make some strategic decisions—for example, do they want to forgo insurance and pay a $2,000 per employee penalty. For some, the penalty might be cheaper.

The new tax forms require employers to gather information on employees' pay and health coverage, as well as the number of months workers and their dependents were covered. For many small businesses, that information must come from more than one source—payroll companies and health brokers or insurers. They must then make calculations to determine whether their coverage was affordable according to the healthcare law. If they make a mistake in their math, they can face penalties from the IRS.

Companies that try to do the work themselves will find it labor-intensive. And asking employees for information about their families may cause friction, says Samantha Reynolds, a spokeswoman for A Plus Benefits in Boise, Idaho.

"You don't want to just send a letter and say, answer these questions," she says.

Some payroll companies will, for a fee, compile the forms, but coordination between them and a healthbroker or insurer can still be a hassle.

"The companies have to trust and depend on their HR and payroll providers to gather and handle it," says Mark Sinatra, CEO of Staff One, a human resources provider based in Dallas.

Cathy Trlica has already hired a company to do the paperwork for her Caring Senior Service franchise in New Braunfels, Texas. She's estimating that about 30 of her employees will want the insurance she'll offer starting Jan. 1; others are likely to be covered through their spouses' policies. But compiling the tax forms will be too time-consuming for her small office staff.

"There's no way we have the capability of doing that internally," Trlica says.