A common theme we hear from small business owners is their desire to stay below 50 employees. That seems to be the magic number for many who have either been there before or are approaching that number for the first time, like a medieval knight galloping through a dark forest.
What is it about the number 50 that makes it so significant? Those concerned about this number of employees usually fall into two camps. The first group fear having to comply with certain legislation, namely the Affordable Care Act (ACA) and the Family Medical Leave Act. The other group are concerned about the complexities related to managing an organization once it gets above 50 employees. A company of this size may not possess the skills – or the desire – to run an organization that large.
Those in the first group may be missing an opportunity. If fear of the ACA is the only thing holding them back, then they should consider this point. If they do not offer health insurance, employees who can’t get it through a spouse or parent will probably opt to remain uninsured. But the ACA includes an individual mandate that means those employees must have health insurance now or face tax penalties.
The second group is certainly understandable. James Fischer notes that organizational complexity and management priorities typically change at the 10, 20, 35, 57 and 95 employee marks. This means entrepreneurs that have grown their businesses through each of the first three organizational transitions and are now approaching another plateau. Busting through this ceiling will require investment and organizational realignment before another growth phase can begin. They may be happy with the results the organization is getting in that 35-57 employee phase and comfortable with their ability to manage an organization that size. They may strategically opt to remain in that space.
Let’s take the case of Henry, a single guy aged 30 who works for a company with 35 employees that doesn’t offer health insurance. Henry is uninsured, but he is healthy and not concerned about the risk. The owner has said he’ll never grow to 50 employees because of the ACA. Henry got a big fine he wasn’t expecting when he filed his taxes. So, he goes to healthcare.gov and buys insurance to avoid the fine next year. He finds he earns too much to qualify for the government-subsidized insurance, so he has to pay the entire premium out of pocket. Henry loves working at his company, but he knows that a larger competitor in the area offers health insurance that is partially subsidized by the company. A month later, Henry turns in his two-week notice.
To avoid this happening again and again, Henry’s company needs to defend against this type of turnover. The best financial alternative might simply be to provide a qualified plan to its employees. Many small companies are going to find that not having a plan is more of a deterrent to recruiting and retention than it used to be. There is basically no competitive advantage to be gained by NOT offering insurance. So that magic number, 50, is really a windmill instead of a dragon.
Rely on the expertise of the Davidson Group to ensure your company is positioned for maximum growth at all phases of organizational change.
