2. Do you feel that it is more understandable that small companies like these would look to avoid coverage, compared to larger companies?

MANAGING PEOPLE The Affordable Care Act-How Will Small Employers Respond? Sales at Automation Systems LLC, a parts-assembly factory in the Chicago suburbs, dropped 60% following the 2008 financial collapse. Owner Carl Schanstra was able to get the firm back on its feet by breaking into new markets, such as the auto industry. Sales are up 12% this year, and are likely to rise again next year, too. But for the 34-year-old, the expected growth in sales brings a new concern. He is worried that as Automation Sys- tems continues to expand, it will be subject to a provision in the health care overhaul that could damage its bottom line. Mr. Schanstra is contemplating various strategies he can take next year in order to sidestep what he believes are signifi- cant burdens of complying with the law. In fact, he's consider- ing whether he should split his manufacturing firm in two. That is because his plant, with sales of about $1.6 million for 2012, currently employs 40 full-time workers, mostly low- paid employees who monitor the factory equipment. If sales were to continue to rise, the plant could, conceivably, employ 50 full-time workers in 2014. Under the new health care law, the Affordable Care Act, businesses with 50 or more full-time equivalent employees will be required, starting in that year, to offer workers health insurance or potentially pay a penalty. The expense, says Mr. Schanstra, would drive up the cost of his labor. So he doesn't want to let employment at the fac- tory reach that number. "I'll be hammered for having more people at work." Splitting the business into two would be a "headache," he acknowledges. But with fewer than 50 full-time equiva- lent employees in each half of the business, he would hope to avoid paying the penalties that otherwise could amount to at least $40,000 a year. His firm hasn't offered health- insurance benefits since 2003, when premiums jumped 50%, bringing his yearly outlay for coverage for his staff of 20 people to about $40,000 total. Experts say breaking up a firm-as Mr. Schanstra is contemplating generally won't be a solution. According to the Internal Revenue Code, all workers who are employed by a common group of corporations or business partners must be treated as being employed by a single owner. But an owner could potentially create a spinoff entity if his or her business has more than one revenue stream, and if there are different owners for each entity, says Peter Flem- ing, Wilke & Associates LLP. But, "the spinoff move is a big step," he says, because it requires surrendering a portion of the company over to someone else. Exploring far-reaching strategies to dodge the employer mandate isn't uncommon, adds Katie Mahoney, executive director of health care policy at the U.S. Chamber of Com- merce, because, for some business owners, "it's a matter of dollars and cents and they don't have it. They find a way around it or they close their business." Some say they're likely to reduce their workers' hours or even lay off staff in order to remain below the thresholds established under the act. Under the law, firms with 50 or more full-time-equivalent employees will have to provide "minimum essential" and "affordable" coverage, or pay a pen- alty for each employee in excess of 30 full-time employees. Sidney Brodsky, chief executive officer of James Gerard Foods, a gourmet food business in Phoenix with roughly 50 employees, says he is considering "weeding out" his weakest performers to reduce his firm's head count to below 50 full-time equivalents. He would then bring on contract workers, should he need more help. Mr. Brodsky has offered health care benefits to his employ- ees for the past 12 years, though he only contributes 50% toward their premiums. By hovering under the law's employee threshold, he can continue to offer health benefits to his employees without having to worry about meeting the "mini- mum essential" mandate. In order to avoid penalties, employ- ers must offer a plan that covers at least 60% of the actuarial value of the cost of the benefits. In addition, employers must not charge the employee more than 9.5% of his or her house- hold income toward the cost of health-insurance premiums. Others plan to shift to part-time workers, because there are no penalties if part-time employees aren't offered coverage. Mr. Schanstra says he is thinking of bringing in a partner to take over one-half of the business, should he divide it. He is also considering opening a factory in South America- and focus his growth there. "I want to see where the cards fall," he says. "Splitting the company is not off the table." Mr. Schanstra is aware that dividing his business into two may not help him dodge the law's requirements. His backup plan, if he can't split his firm, is to keep his head count low or to invest in machinery that would replace workers. He also plans to raise prices as much as 20% starting in January to buffer any health care related costs he may incur in 2014. Getting part-time staff is "not a really good functional way for us to operate our business," he says, because of how employees' shifts, which rotate 24 hours a day, are sched- uled for optimal productivity. "The unknown makes everyone stop spending and start saving," he says. "We will be more cautious and leaner and tighten up." QUESTIONS 1. How do you feel about companies looking for ways to avoid coverage under the Affordable Care Act? 2. Do you feel that it is more understandable that small companies like these would look to avoid coverage, com- pared to larger companies? 3. What are the consequences for companies, workers, and society of companies avoiding coverage by the law