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As serial entrepreneurs grow businesses and expand their overall business footprint, there is a tendency for advisors (such as GP CPA) to explore the idea of consolidating certain elements of the businesses.
This is often an effective strategy for managing costs and helping with other metrics that are indirectly related to profitability, like turnover reduction, benefits offerings, or simply streamlining operations. One of the ways that consolidation makes sense is the formation of a management company, that oversees operations and potentially controls the labor pool across several entities.
The trick to making this structure work efficiently is also at odds with two parts of the tax code that require certain things of business owners at a certain level, namely ones with more than 50 employees (also, full-time equivalents, “FTE”) and retirement plans.
When the Affordable Care Act kicks into high gear?
Once a business reaches 50 employees or the equivalent number of FTE’s, then the Affordable Care Act kicks into high gear and requires the employer to offer and pay for a portion of health insurance for all full-time employees. This means that employees working 120 hours a month are considered full time, and it also means that a taxpayer who controls multiple, unrelated businesses with 50 FTE’s are included as well.
If Tom Taxpayer controls four restaurants with a total of 60 full-time employees, then Tom must offer health insurance to each restaurant even if each entity does not itself have 50 FTE’s. Group health plans in NC/SC are atrociously expensive and notoriously offer poor benefits, which makes this a really tough decision for the business owner.
The same situation applied to Tom Taxpayer with regards to retirement plans, the laws that affect the FTE calculations and controlled group scenarios also apply. The ability to offer a retirement plan and not incur significant expenses for administration and employee contributions is very limited, especially when there is not a long term strategy to work from.
All of the major retirement plan types include elements of profit sharing and/or mandatory contributions for employees to prevent retirement plans from working only for the owners, which makes them less appealing for some business owners. However, there are options and strategies available to business owners to mitigate the costly effects of both of these burdens while still retaining the benefits they provide.
If you are like Tom Taxpayer and you offer benefits such as retirement & health to the company’s employees, it is worth a conversation to review how the benefits and companys are structured. Are you in compliance with the law, is there a better way to pay for these things, are you getting any value out of the offering? If you are not sure of the answers to these questions, contact GP CPA to get some insight in how it could work. Even though we love technology, it’s our people that count.
The Employee Retention Credit (“ERC”) has had some upgrades and retrofits to some of the basic calculations with the most recent (12.27.20) CARES Act changes.
We are glad to inform you that Justin Prusiensky, Chief Executive Officer of the GP CPA P.C. was featured on WCNC Charlotte coverage about “Are Unemployment Benefits Taxable”. If you missed it on TV, you can watch a video featuring GP CPA on the WCNC Charlotte website.
Congress extended some of the tax breaks retroactively to January 1, 2018. They now expire on December 31, 2020. Learn more about tax breaks that have been extended.
GP CPA offers a wide range of business advisory services that are tailored to the needs of business owners. For those small businesses who need someone to keep the books, we can do that.
Take control back from the big box payroll companies and work with someone who can guide you to a better payroll process. GP CPA + GUSTO is the modern way payroll runs and the partnership that moves your business forward.