Smart Benefits: Why You May Not Want To Grow Your Business

Monday, March 04, 2013


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Healthcare reform mandates make your business size a potential liability. Does it make sense to curtail growth overall?

Employers who are able to maintain under 50 full-time employees will beat some provisions of healthcare reform. Starting in 2014, they won’t be required to offer health coverage and, unlike their larger peers, won’t pay a penalty. The catch? Just make sure your business doesn’t grow.

For an emerging business on the verge of growth, that may be easier said than done. Adding some protean to the employee mix may be the answer.

What’s protean?

Small employers who do not want to add the cost of providing health insurance to their bottom line will have to manage hours closely to keep their workforce under 50 employees. This will limit adding full-time staff and will encourage shifting employees from full-time to part-time status, downsizing, or worst case, closing.

Author and journalist Michael S. Malone has an alternative: the “Protean Corporation. As he describes in his 2009 book, The Future Arrived Yesterday, with a Protean Corporation, the company retains the core employees that are the key strategic thinkers responsible for managing the company to bring it forward. All other functions are outsourced, such as human resources, payroll, marketing and public relations, environmental, health and safety, finance and legal. But not just to anyone: the protean concept involves reinventing the employee relationship by having the former “employees” set up as corporations to perform the outsourced work.

By reducing its employee count and using former staff as corporations, rather than 1099 contractors, the company can stay under 50 full-time employees requirement for the purposes of healthcare reform.

Protean is not for everyone

Some employees will embrace the Protean Corporation while others will not. For the arrangement to work, employees need to be self-starters who can shift from taking direction from the employer to advising the employer.

The upside for the employee who can adapt is greater job stability, increased flexibility, more control in the employment relationship and, hopefully, more business.

The downsides? If the employee doesn’t negotiate financial terms to cover the costs of starting a corporation, and perhaps providing oneself with benefits, he or she could be short-changed. The employee-turned-corporation will face competition, too, as they compete for their former employer’s business – and additional business – against other new corporations set up to provide these same outsourced tasks.

RI Embraces the Trend

Karen Rhodes, SPHR, Vice President of Cornerstone Group’s Human Resource Division, sees the protean trend taking shape locally with all aspects of employee management. “For several years, employers have been reducing Human Resource and payroll staffs, and replacing them with outsourced talent or by creating a contractual relationship with their employees,” says Karen. “With proper planning, these traditional in-house functions have been transitioned to corporations, and it continues to be a growing trend in our local market.”

Rob Gallagher, President of Gallagher Environmental Consulting Group in Rhode Island, is one early adopter who understands how the protean structure can work to a small employer’s advantage. “Ten years ago, I wanted to shift from being an employee to running my own business that provided outsourced strategic environmental health and safety consulting. I presented the idea to my employer, who was quick to see the benefits of this new arrangement. We changed the relationship contractually and they became my first client. Today, my company serves as a resource for several employers who realized it made sense to outsource EH&S.”

For all the concerns healthcare reform brings with it, this may be one way it spurns more new businesses.

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Amy Gallagher has over 19 years of healthcare industry experience. As Vice President at Cornerstone Group, she advises large employers on long-term cost-containment strategies, consumer-driven solutions and results-driven wellness programs. Amy speaks regularly on a variety of healthcare-related topics, is a member of local organizations like the Rhode Island Business Group on Health, HRM-RI, SHRM, WELCOA, and the Rhode Island Business Healthcare Advisory Council, and participates in the Lieutenant Governor’s Health Benefits Exchange work group of the Health Care Reform Commission.


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