You’re a small business owner with small-business operations. You want your employee to feel cared for and supported, and you know that offering perks is one of the best ways to do that.
Yet, you’re a little unclear on how it all works. Isn’t insurance something for big businesses? How does it really work for the little guys, especially when it’s just one other person? Should you even bother?
These questions have answers, and since you’re presumably already paying for your own insurance as a small business owner (or you should be!), you already have the tools at your fingertips. For now, all you have to do is read on to figure out whether it’s right for you and what the benefits are.
Who Is Your Employee?
First, you must decide whether the person working for you is an employee. Even someone who does a lot of work for you doesn’t necessarily count as an employee, if they meet certain other parameters.
As the U.S. Small Business Administration explains, “Distinguishing between employees and independent contractors can impact your bottom line, as this affects how you withhold taxes and avoid costly legal consequences. Learn the differences before hiring your first employee.”
They go on to explain that “An independent contractor operates under a separate business name from your company and invoices for work completed. Independent contractors can sometimes qualify as employees in a legal sense. The Equal Employment Opportunity Commission created a guide for making the determination. If your contractor is discovered to meet the legal definition of employee, you may need to pay back taxes and penalties, provide benefits, and reimburse for wages stipulated under the Fair Labor Standards Act.”
If you’re not sure whether a person is your employee or not, ask yourself the following questions:
- Do you control how many hours they put in?
- Do you specify where and when they work?
- Do you mandate they use certain equipment?
If you do have a large say in how or when they produce work for you, they’re considered your employee by the IRS. On the other hand, if you pay them for services but don’t specify how they complete those services on your behalf, they’re an independent contractor.
Do I Have To Offer Health Insurance?
When you have one employee, there is no law that requires you to offer health insurance. The Affordable Care Act stipulates that businesses who employ more than 50 people must offer it or face a tax penalty, but no one is obligated to do it. And, it certainly doesn’t affect any company consisting of themselves and one other person. In other words, you.
The Affordable Care Act did make substantial changes that small business owners should be aware of when deciding whether to purchase insurance for their employees. If you do choose to offer coverage, there are regulations you will have to follow.
In the video below, Josh Prince explains, "Can An Employer Offer Health Insurance To Some And Not Others?" Employers may want to offer their management team health insurance but not their regular full-time staff. Can they do that?
Is Your Business Eligible for Group Coverage?
Under federal law, small employers are guaranteed group coverage if they choose to purchase it. A “small employer” is defined as a business with 2 to 50 full-time employees.
Owners are typically counted as employees, so sole proprietorships with one employee usually fall into this category, as well as partnerships with no employees (by definition partnerships have two or more partners). Some states define the self-employed as “groups of one” and require insurers to guarantee issue them coverage in the small group market.
What You Need to Get Group Health Insurance
In order to quality for group insurance, you must meet several qualifications.
First, you have to count as a business. Though this may seem obvious, you can’t just plant a flag and declare yourself a business. You have to follow specific steps:
1. You must select a business name.
2. File as a business entity
3. Register for an Employer Identification Number with the IRS.
4. Get any applicable licenses or permits.
5. File tax returns.
If you don’t take these steps, you’re not considered a legitimate business, and are therefore not eligible for a group plan.
The only other qualification is that your employee must count as a full-time or equivalent worker.
Benefits of Getting a Group Health Insurance Plan
So, why get a group insurance plan for yourself and your employee? There are several benefits:
- You can choose your own tailored insurance plan. That way, you don’t pay more than necessary on services you won’t use, but you can ensure quality coverage for both of you.
- Having another person on your insurance plan turns an individual plan into a group plan. This automatically lowers the cost and allows you to recoup some of the outlay for your own insurance.
- Benefits do more than insure your employee’s health; they also ensure their loyalty. Many people will stick around for perks, even if they might otherwise head to greener pastures. If you have an employee you love, consider taking that extra step.
Finding a Broker To Help You
In the end, deciding whether or not to get insurance for just one employee is a matter of weighing factors unique to your business. Once you decide to do your employee a service, you’ll need to speak with a qualified insurance agent to nail down the specifics and ensure you get the best deal.
If your current insurance agent isn’t offering a great price, or you don’t yet have insurance, it’s time to reassess your options and find someone who specializes in small business insurance – even for just one employee.
You can learn what to look for in a broker in our article, Top 4 Traits to look For In a Small Business Health Insurance Broker.
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