In the past few years I've spoken with hundreds of small business owners. A common theme I hear from a certain group is the desire to stay below 50 employees. That seems to be the magic number for many who have either been there before and shrunk back or are approaching that number for the first time like a medieval knight galloping toward the dark forest.
What is it about the number 50 that makes it so significant? For some it is fear of having to comply with certain legislation, namely the Affordable Care Act and the Family Medical Leave Act. It was after the passage of the ACA back in 2010 when I started noticing the I'm never going to have 50 employees (again) talk. For others it is linked to the realization that there are added complexities related to managing an organization once it gets above 50 employees, and they may not possess the skills or the desire to run an organization that large.
This second group is certainly understandable. James Fischer points out in Navigating the Growth Curve 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 50 employees recognize that they will soon be facing 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.
It's the first group that may be missing an opportunity. If fear of the ACA is the only thing holding them back, then they should consider this: If they do not offer health insurance, employees who weren't able to get it through a spouse or parent probably opted to remain uninsured. But the ACA includes an individual mandate, which means those employees must have health insurance now or face tax penalties.
Let's take the case of Bob, a single guy age 30 who works for a company with 35 employees that doesn't offer health insurance. Bob is uninsured, but being healthy, he never thought much about the risk. The owner has said he'll never grow to 50 employees because of the ACA. Bob files his 2015 taxes and gets popped with a big fine he wasn't expecting. He finds out the fine will be even larger in 2016. He goes to healthcare.gov and buys insurance to avoid the fine next year. He finds he earns too much to qualify for the cheap, government-subsidized insurance, so he has to pay the entire premium out of pocket. Bob 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. 30 days later, Bob turns-in his two week notice.
Of all the options available to Bob's company 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 and there is basically no competitive advantage to be gained by not offering insurance. So that magic number, 50, is really a windmill not a dragon.
If avoiding this legislation has created an artificial barrier to growth, a company that would otherwise be happy to continue growing should partner with a knowledgable HR professional, commercial insurance agent and finance professional. With their help, it can position itself to bust through the 57 employee plateau and charge ahead toward the next plateau, which won't occur until approximately the 95 employee mark.
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