Evaluating the Impact of Federal Legislation on Small Businesses: An Exploratory Study of the New Minimum Wage Rate and the Health Insurance Tax

Kirk Heriot, Teresa Lang, Neal Thomson

Abstract


In 2010, Congress passed a Health Care bill that was widely criticized due to concerns of the impact it would have on small businesses. The proposed legislation originally included a provision to charge an insurance premium tax for firms with payrolls greater than $250,000. The final version of the bill greatly modified the provisions that would have charged an insurance tax to small firms with over fifty employees. This study evaluates the impact on labors costs of the proposed health insurance tax as well as recent increases in the minimum wage rate. We address the health insurance tax provisions because Congress has suggested new provisions may reduce the fifty-employee threshold.

We offer a discursive assessment of the impact of the federal  legislation with regard to minimum wage and the proposed health insurance surcharge on small businesses with $250,000 in labor costs that do not carry health insurance for their employees. We use a modified case study to evaluate the financial impact of federal legislation on a typical firm in the restaurant industry. This industry is particularly important because it contains small businesses with many employees earning minimum wage and working part-time.

The paper concludes that a firm with as few as 20 employees would have as much as a 50-55 percent decrease in net income as a result of the two federal labor laws discussed in this  research. The costs identified in this study are not insignificant because they may become a reality for firms with fewer than 50 employees if the bill is modified. The change in the minimum wage law alone can have a severe impact on the labor costs and net income of a small firm for companies with as few as 5 employees.


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 University of Houston-Clear Lake