By Les Davies, Region 5 Advocate
We’ve all been there – you’re driving down that straight highway, and the speed limit seems ridiculously low. You would like to go faster, but you also know the consequences: a speeding ticket from a nice police officer, a hefty fine, points on your driving record and higher insurance premiums. We would certainly like to go faster, but the costs of doing so are a strong deterrent to more speed.
I met with members of the Dayton Regional Manufacturing Association at the offices of JBK Manufacturing on August 16th and learned some of the barriers to business expansion when the employee roster hits 50.
Better Caul Saul
Well, you may not need an attorney – yet – but you probably will need a Human Resources representative at this point. Crossing the 50-employee threshold will mean compliance with the Family and Medical Leave Act (FMLA), which gives employees up to twelve weeks of unpaid job protected leave annually. Managing the details of this Act can eat up a significant amount of time and resources for a business owner and requires a certain amount of expertise. The leave time may be unpaid, but there are certainly financial implications to cover the work in the employee’s absence. This is compounded if the leave is taken in four-hour increments, rather than all at once, which happens more frequently than you would expect.
Is there a doctor in the house?
In addition to the FMLA, an employer also becomes liable for insurance coverage under the Affordable Care Act (ACA). The added costs here can be significant in terms of premiums and reporting requirements mandated by the ACA. It’s not easy explaining this to the employees and helping them understand their rights and responsibilities and managing the reporting requirements. Maybe we need two HR representatives.
The work’s not done until the paperwork is finished
In addition to direct costs of exceeding the 50-employee threshold, there are also reporting requirements. These vary greatly but include Equal Employment Opportunity reporting and Form 5500 reporting on employee benefits and pensions where the employer is a federal contractor or sponsors a plan under the Employee Retirement Security Act.
And that’s not all folks
As an employer considers the costs associated with growing their business, it’s wise to remember that many states add their own requirements on top of federal mandates. Add all of this up, and the incremental cost of adding that 50th employee acts as a deterrent to growing the business further.
According to Michael Gearhardt of JBK Manufacturing, the incremental profit realized from the addition of the 50th employee is more than offset by the regulatory compliance costs associated with the new regulatory obligations. When the burdens of compliance discourage growth, it’s time to examine some kind of alternative.
Les Davies serves as the Region 5 Advocate for the SBA Office of Advocacy, representing small businesses in Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin. Davies works with small business owners, state and local governments, and small business associations to bring the voice of Region 5 to Washington DC. He can be reached at Leslie.Davies@sba.gov.