I S S U E 5 8 • W I N T E R 2 01 4
SPECIAL
HE ALTH CARE REFORM
EDITION
BIZGROWTH
S
T
R
IS A PRIVATE
EXCHANGE
THE RIGHT
CHOICE?
A
T
E
G
I
E
S
A LESSON IN
CHANGE
MANAGEMENT
Health Care Reform’s
IMPACT ON
COMPENSATION
THE SHARED RESPONSIBILITY
PENALTY’S EFFECT ON
WORKER CLASSIFICATION
Ready for the ACA?
IS YOUR
PAYROLL
SYSTEM?
business
our
is growing
yours

In This Issue…
Employee Benefits
Employee Benefits.......................2
Private Exchanges: Are They
Right for Your Company?
Human Resources.......................4
The Impact of Health Care
Reform on Compensation
Tax & Accounting........................ 5
Looming Shared Responsibility
Penalty Magnifies Worker
Classification Issues
Payroll........................................6
Is Your Payroll System
Ready for the ACA?
Management & Performance.......7
A Lesson in Managing Change
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CBIZ in the News
The New York Times
Insurance on the person who makes
the business run
November 29, 2013
NBC News
Obama admin. knew millions could not
keep their health insurance
October 29, 2013
Associated Press
3 things every small business owner
must do now to prepare for the
Affordable Care Act
September 25, 2013
For complete articles:
www.cbiz.com/in_the_news.asp
2 | BIZGROWTH STRATEGIES
PRIVATE EXCHANGES:
Are They
for your
W
Company
e have more ways to purchase our benefit programs than
ever before. We are able to choose between a governmentrun marketplace, a private exchange or the traditional
procurement process. Private exchanges have become the early
leader… at least in the media. And, the strong interest by employers
in the private exchange solution may leave you wondering if it is the
right solution for your organization. The good news is that a skilled
benefits advisor can guide you through the maze of these options,
helping you find the option best suited for your company.
A private exchange is a non-government entity run platform that
offers companies and their employees the vehicle to customize their
benefit portfolios to meet their personal needs. The first step in
evaluating a private exchange is to determine if a defined contribution
model fits your corporate culture. In a defined contribution model, a
set dollar amount is set aside for each employee to use to purchase
their benefits. As the employer, you select the carriers and products
to offer within your exchange. The employee then enrolls online
SPECIAL HEALTH CARE REFORM EDITION
CBIZ, INC.

and spends their allotted amount of money on the
benefits they find best meet their needs.
the programs you offer meet and comply with the
requirements under the new legislation.
What is the upside? For the employer, the
financial view is easy to forecast. It’s simple to
calculate what your cost will be based on the setper-employee dollar amount. In addition, the format
allows you to offer a broader array of choices to
your employees. You no longer have to try to please
all employees with one or two medical options, for
example. Within the private exchange you could
potentially offer five to eight medical product
offerings. In addition, it is much easier for you to
offer more ancillary product offerings with less
administrative burden. Your employees can choose a
high deductible health plan and have enough money
left to buy the additional life insurance or dental
coverage they may desire. The level of employee
satisfaction increases due to the greater choice in
customizing their own benefit portfolio.
As it stands today, the private exchange path
offers greater choice of carriers and products than
the State or Federal Marketplaces. In addition,
the information about these offerings is easily
obtainable. Employee assistance is offered through
a call center to answer any questions they may have
about their choices. It is important that network
information is at your employees’ fingertips to make
a wise choice. The narrowing of networks to reduce
premium cost has definitely taken a prominent role
within the government and private exchanges. It is
critical to make sure your employees are armed with
all data points to make the best decision.
The private exchanges are a convenient way
to manage your benefits program and not worry
about your compliance with the Affordable Care
Act. A professional benefits advisor can ensure that
Be sure to work with a skilled advisor to ensure
you choose the optimal solution for you, your
organization and your employees.
BONNIE EVELYN
CBIZ Benefits & Insurance Services, Inc.
Boca Raton, FL • 561.544.6366
bevelyn@cbiz.com
DISCLAIMER: This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional
advice. To the extent anything herein could be construed as tax advice, such advice is not intended to be used and cannot be used to
avoid penalties under the Internal Revenue Code or to promote, market or recommend to another person any tax-related matter. This
information is general in nature and may be affected by changes in law or in the interpretation of such laws. The reader is advised
to contact a professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection
with the use of this information and assumes no obligation to inform the reader of any changes in laws or other factors that could
affect the information contained herein.
CBIZ, INC.
SPECIAL HEALTH CARE REFORM EDITION
BIZGROWTH STRATEGIES | 3

Human Resources
THE
IMPACT
of Health Care Reform
ON COMPENSATION
A
s of the time that this article goes to press,
the Patient Protection and Affordable Care Act
(PPACA), also known as ACA or Obamacare,
is in disarray. Beginning on October 1 this year, the
insurance exchanges went live. About the same time,
the word “glitch” became part of the everyday American
lexicon. Many who have been able to navigate the
enrollment website www.healthcare.gov have reported
sticker shock, and very few appear to have signed up.
The good news is that employers received a shortterm reprieve on the employer mandate via blog post.
As many are aware, the employer mandate (requirement
that employers with more than 50 employees provide
minimum coverage that is “affordable”* to employees)
has been delayed by a year. This delay makes the topic
of the impact of PPACA on compensation decisions
particularly timely.
The ACA will, in all likelihood, impact compensation
in the following ways:
1.
Increasing employees’ pay could reduce
their purchasing power.
Freakonomics by Steven D. Levitt and Stephen
J. Dubner provides economic analysis and insight
into unintended consequences among seemingly
unrelated topics. While there are myriad unintended
consequences associated with the ACA, let’s focus
on the one that directly impacts compensation.
Specifically, in 2014, many employees will receive pay
increases that they would be better off forgoing. How
can this be? After all, more compensation is better
than less compensation… right? Wrong!
The federal government now offers subsidies on
health insurance based on the number of household
members and income. The subsidies are on tiers,
making it entirely possible that a pay increase that
crosses one of the subsidy thresholds will actually
cause a reduction in federal subsidies that will not
be offset by the additional compensation. Adding
complication to this issue is the fact that the
subsidies are based on household income, so if one
of your employees has a spouse who works, you may
not have all of the information necessary to evaluate
their subsidy level. The chart on this page lists the
threshold amounts that may create this issue.
2.
The employer mandate may impact the mix of
total rewards at an organization.
The ACA mandates coverage or penalties for lowpaid employees, many of whom were not previously
covered by health insurance. Economics 101
illustrates how increases to the minimum wage result
in companies seeking creative alternatives to more
labor and thus higher unemployment. While the ACA
does not directly increase the federal minimum wage,
it does directly increase the cost of labor, which has
the same impact.
3.
The individual mandate increases cost of living –
particularly for lower paid employees.
As indicated above, the delayed employer mandate
is effectively an increase in the minimum wage.
However, the individual mandate (which has not been
delayed) increases the cost of living. When individuals
(Continued on page 8)
Federal Poverty Level Chart for 2013 (Excludes HI and AK)
Persons in
household
100%
138%
150%
200%
300%
400%
1
$11,490
$15,856
$17,235
$22,980
$34,470
$45,960
2
$15,510
$21,404
$23,265
$31,020
$46,530
$62,040
3
$19,530
$26,951
$29,295
$39,060
$58,590
$78,120
4
$23,550
$32,499
$35,325
$47,100
$70,650
$94,200
5
$27,570
$38,047
$41,355
$55,140
$82,710
$110,280
6
$31,590
$43,594
$47,385
$63,180
$94,770
$126,360
7
$35,610
$49,142
$53,415
$71,220
$106,830
$142,440
8
$39,630
$54,689
$59,445
$79,260
$118,890
$158,520
* or brevity, getting into specific definitions and formulas associated with PPACA is outside the scope of this article.
F
4 | BIZGROWTH STRATEGIES
SPECIAL HEALTH CARE REFORM EDITION
CBIZ, INC.

Tax Accounting
Looming SHARED RESPONSIBILITY PENALTY
Magnifies WORKER CLASSIFICATION Issues
W
hether a worker is classified as an employee
or as an independent contractor makes a big
difference for Federal income and employment
tax purposes. A company must withhold income
taxes and payroll taxes (FICA and Medicare), pay the
employer’s share of FICA taxes on the wages plus FUTA
tax, and often provide an employee with fringe benefits
it makes available to other employees. The business
simply sends an independent contractor a Form 1099MISC showing how much he was paid for the year. With
the employer health care shared responsibility penalty
coming in 2015, the distinction between employee and
independent contractor is more important than ever.
large employers. In addition, these independent
contractors will not factor into the calculation of either
of the excise taxes. The excise taxes are calculated
based upon the number of full-time employees. As
a result, employers may be tempted to reclassify
workers currently classified as employees to
independent contractors or, when adding workers, to
hire independent contractors rather than employees.
The consequences of misclassifying employees as
independent contractors have always been severe –
additional payroll taxes, interest and steep penalties.
The shared responsibility excise tax makes the
consequences even more costly.
Originally set to start in 2014, the Affordable Care
Act (ACA) imposes a nondeductible excise tax (the
“shared responsibility payment”) on large employers
who do not offer minimum essential health coverage
at an affordable rate through an employer-sponsored
plan, providing minimum value to 95% or more of
their full-time employees. A full-time employee is one
who on average works 30 or more hours per week. In
July, the IRS delayed implementation of the employer
reporting requirements and the shared responsibility
payment until 2015.
The IRS and the states are well aware of these
issues and are aggressively investigating worker
classification issues. In an attempt to increase
compliance in this area, the IRS in late 2011
launched an amnesty program – the Voluntary
Classification Settlement Program (VCSP). The VCSP
allows employers to voluntarily reclassify workers in
exchange for a reduced payment to cover back taxes.
Refer to our Tax Alert, IRS Expands Relief Program
for Employers with Misclassified Workers, for more
information on the VCSP.
Generally, a large employer is one who employed
an average of at least 50 full-time employees and
full-time equivalent employees during the preceding
calendar year. Workers who are properly classified
as independent contractors will not count toward
the 50-employee threshold that triggers the shared
responsibility payment requirement imposed on
So, how does a business determine who is an
employee and who is an independent contractor?
Unfortunately, the answer to this question is complex
and there is no “black and white” answer. Historically,
the IRS had developed a list of 20 factors based
on “common law” rules to make its classifications.
Because the common law factors change over
time, however, the IRS now focuses on three main
categories to determine the degree of control an
employer exercises over a worker:
Behavioral Control looks at facts showing whether
the business has the right to direct or control how the
worker performs the specific tasks they were hired to do.
Factors considered include instructions given, training
received and/or other means of behavioral control.
Financial Control looks at whether the business
has a right to direct or control factors such as
significant investment, unreimbursed expenses,
services available to the relevant market, method of
payment and opportunity for profit or loss.
Relationship of the Parties looks at evidence
to determine how the parties involved perceive their
(Continued on page 8)
CBIZ, INC.
SPECIAL HEALTH CARE REFORM EDITION
BIZGROWTH STRATEGIES | 5

Payroll
Is Your
Payroll System
ACA?
Ready for the
B
eginning in 2015, the Affordable Care Act (ACA)
employer shared responsibility provision requires
large employers (50 or more employees) to offer
minimal essential coverage to full-time employees and
dependents (excluding spouses) and offer coverage
that is deemed affordable and of minimum value
(60%) in order to avoid a penalty. The provision places
a significant burden on payroll, timekeeping and
employee status tracking.
Employers must prepare a new process to include
employee counts, employment status and health plan
cost – all of which continue to compound the payroll
operations process. Employers will need a combination
of information to analyze and make decisions about
status as an applicable large employer, the offer of
health coverage and their risk for penalty.
The employer shared responsibility requires
the employer to calculate the number of full-time
employees (including seasonal) and full-time
equivalents for each calendar month for the preceding
calendar year by adding the number of total employees
and dividing the sum by 12 (for fractional results,
round down). The result is the average number of
full-time employees. If this total count is less than 50,
the employer is not subject to the employer shared
provision for the current calendar year. If the total
count is greater than 50, the employer is subject to
the employer shared responsibility provisions for the
current calendar year. A seasonal worker exception may
apply if the total number of employees exceeds 50 for
120 days or less during the year.
The penalties are assessed if the employer
employs a credit employee. A credit employee is one
who receives a premium tax credit or cost sharing
assistance when purchasing coverage through the
Marketplace. Calculated monthly, penalties are of two
“so called” types:
1. No Coverage Penalty: If the employer does not
offer minimal essential coverage to at least 95% of
its full-time employees and has at least one credit
employee, the penalty is $166.67 per month per
full-time employee (less the first 30).
2. Inadequate or Unaffordable Penalty: If the employer
offers minimal coverage that is unaffordable (i.e.,
employee’s premium exceeds 9.5% of household
income) or coverage does not meet minimum value
and the employer has at least one credit employee,
6 | BIZGROWTH STRATEGIES
the penalty is the lesser of $250 per month for each
credit employee or the “No Coverage” calculation
previously described.
Payroll, HRIS and timekeeping systems are
valuable sources of information for employers to
perform essential calculations in order to determine
their status as an applicable large employer. However,
other information will be needed to determine who
must be offered coverage to avoid employer shared
responsibility penalties.
Oftentimes, employees are hired with variable
work schedules, making it difficult to track hours.
The law permits use of a tracking period (known as
a measurement period) to look back to determine
those employees’ status as full-time or not. Additional
information will need to be included in determining
variable employees’ status during the measurement
period, such as unpaid leave hours. Based on hours
worked during a measurement period, an individual
is deemed full-time or not during a corresponding
“stability period” of at least the same duration.
Payroll systems also will be essential in determining
plan affordability. Wages reported in Box 12, Code DD of
the Form W-2 will be compared with payroll deductions
for health plan premiums to aid in determining whether
the employer’s health plan is affordable.
Employers should review data results in the
coming months to make decisions and determinations
about the offering of health coverage. Many house
this required information in various internal locations,
including payroll, benefit and HRIS systems and
spreadsheets. By utilizing multiple sources of data to
achieve the desired reporting results, an employer may
experience inefficient manual processes and difficulty
defining employee status. Employers may opt for a
centralized solution that maintains all pertinent data in
one location internally or outsource the task to relieve
the administration burden.
Payroll operations for large employers (over 200)
must also consider the delayed ACA requirement of
automatic health benefit plan enrollment to include optout provisions. Small employers should be mindful of
the evolving Small Business Health Care Tax Credit.
The employer shared responsibility provision
presents challenges in decision making, compliance,
determining status and how to avoid potential
penalties. The increased complexity and additional
burdens on a payroll operation of any size employer
should be a priority as final regulations are released
and 2015 approaches.
DAISY HERNDON
CBIZ Payroll, Inc. • Roanoke, VA
540.853.8077 • dherndon@cbiz.com
SPECIAL HEALTH CARE REFORM EDITION
CBIZ, INC.

Management Performance
A Lesson in
MANAGING CHANGE
T
here are two types of change: intentional and
imposed. For those who make the decisions,
intentional change often solves problems and
provides new opportunities. It is paced, anticipated and
a conscious decision. For those required to implement
the change, it is imposed; it is a decision without
choice, it creates problems, disrupts routines and often
feels dramatic. For those crafting the Affordable Care
Act (ACA), it was clearly intentional. However, for those
responsible for implementing and complying, it is an
imposed change.
It is important to understand that change is
situational; it is the new boss, the new role or, in this
case, the new law. Change is external. Transition, on
the other hand, is the psychological process people
go through to come to terms with the new situation.
Transition is internal. During transition, conflict
increases, there is high emotional stress and low
stability, and control becomes a major issue.
Much like the stages of grief when we lose a
loved one, there are four stages we all go through
during transition: denial, resistance, exploration and
commitment. Employers would be well-advised to
understand these stages as they will apply to the
adoption of the ACA.
TRANSITION CURVE
Focus on Environment
Denial
Commitment
Past
Future
Resistance
Exploration
Focus on Self
Employees in the denial stage are clinging to the
past. “Things are fine just the way they are” and “this
can’t be happening” are typical responses. Those in the
resistance stage will complain, blame and potentially
doubt their abilities. In both denial and resistance,
the focus is on the past. As employees move to the
exploration stage, they exhibit more energy. They start
to see possibilities with a “let’s try this” attitude. In the
CBIZ, INC.
commitment stage, employees are focused and they
understand the vision. In exploration and commitment,
the focus is on the future. You will no doubt have
employees in all stages at any given time, especially as
it relates to understanding and navigating the impacts
of the ACA. Those in denial are saying this law will
never come to fruition whereas those in exploration
will embrace the ACA and look at ways it can benefit
themselves and their families.
It is important to understand and even appreciate
the losses individuals feel during transitions. This
should allow you to change your leadership style
with them and help them get through the stages of
transition more efficiently. These losses may fall into
any of the following categories: security, confidence,
relationships, sense of direction or engagement. All
will have an impact on productivity.
There are strategies that you can employ
as leaders to help your employees navigate this
transition. For those in denial, you should approach
them with information. This is so important with the
ACA because changes are constant with the law, so
share as much as you know as soon as you know. For
those in resistance, listen, acknowledge their feelings
and respond empathetically. Don’t try to talk people
out of their feelings. During exploration, it is best to
provide needed education and information. Finally, for
those who have made it to commitment, you should
validate, reward and recognize that commitment.
Your goal as a leader should be to recognize
where your employees are within these stages so
you can provide the right leadership. This will require
you to understand where you are as it relates to
implementing the ACA. Do you understand the
impact of the law on you, your organization and
your employees? If not, you are likely in denial or
resistance. It is okay to be in any one of these stages
and to progress through them. You just need to
ensure you and your employees don’t get stuck in the
denial, resistance or exploration stages. Again, it is
important to remember that change is situational, so
your leadership needs to be flexible enough to adapt
to those situations.
CRAIG PETERSON
CBIZ Benefits Insurance Services, Inc.
Leawood, KS • 913.234.1059
cpeterson@cbiz.com
SPECIAL HEALTH CARE REFORM EDITION
BIZGROWTH STRATEGIES | 7

business
our
is growing
yours
Special e
ar
Health C ition
Ed
Reform
Tax Accounting (Continued from page 5)
are forced to buy health insurance (whether they want
to or not), they have less income available for the
necessities of life.
© Copyright 2014. CBIZ, Inc. NYSE Listed: CBZ. All rights reserved. • CBIZ-020, Rev. 58
Human Resources (Continued from page 4)
relationship. This includes intent of parties/written
contracts, employee benefits, discharge or termination,
permanency and regular business activity.
Many are predicting that industries with a large
number of low-wage workers will move many of
their employees to the state exchanges for health
insurance. As they shift the cost of insurance to
employees, they may find that they need to increase
base pay in order to be market competitive. It is
hard to predict the ultimate direction of the ACA,
but in the short term it is reasonable to expect
that employers who offer health coverage to their
employees will be able to pay less in compensation
than those who don’t.
A business must analyze all three factors,
weighing any individual category or factor based on the
facts and circumstances basis. Court cases on the
issue have resulted in different outcomes, providing
little guidance. Ultimately, there is no litmus test for
exactly how many of these factors must be satisfied,
nor are these factors uniformly applied. The key to
successfully classifying workers correctly is to factually
document and support your position.
Be sure to reach out to an experienced
compensation professional in order to keep up
with trends and best practices as organizations
experiment with different mixes of pay
considerations.
Using independent contractors can be an
effective way to control costs by reducing payroll
taxes, benefits costs and the shared responsibility
excise tax. Misclassifying employees as independent
contractors, however, can be disastrous. Contact a
tax professional to discuss whether your workers are
classified properly.
EDWARD R. RATAJ
RON PRICE
CBIZ Human Capital Services • St. Louis, MO
314.692.5884 • erataj@cbiz.com
CBIZ MHM, LLC • Minneapolis, MN
612.339.7811 • rprice@cbiz.com
8 | BIZGROWTH STRATEGIES
SPECIAL HEALTH CARE REFORM EDITION
CBIZ, INC.