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The Cost of Doing Business

by Jennifer L. Nelson

With rising costs in liability, health care and more, what’s a business owner to do to offer the same services and stay in the black?

In the midst of endless controversy surrounding the Affordable Care Act (ACA), South Jersey businesses also can’t help but worry about the other costs associated with doing business in the state.

From the rising costs of expenses such as unemployment insurance, workers’ compensation, and liability insurance, today’s employers have a lot more than health care costs on their plate.

The good news is there are resources available to help businesses navigate the costs of remaining profitable in South Jersey, and all while nationwide reform efforts continue to grow to help stem the tide of skyrocketing fees for necessities like liability insurance—which currently continues to climb whether or not businesses have even faced litigation. A recent Rutgers-Eagleton survey indicated that 40 percent of South Jersey’s surviving small businesses have been threatened with litigation at some point during the past five years, with insurance premiums for small-business employers rising across the board regardless of whether or not claims were actually filed.

“Virtually all aspects of the costs associated with doing business have increased over the last five to 10 years,” asserts Lauren L. Flounders, owner and agent for Fusion Employer Services in Lawrenceville, a professional employer organization (PEO) that assists clients in handling HR-related functions like payroll, benefits and administration, workers’ compensation and risk management, 401(k) and legal liability.

Maintaining what you have
According to Curt Dumbleton, commercial insurance consultant at Widerman & Company in Haddonfield, a firm of independent agents that provides insurance and risk management solutions, business-related costs like workers’ compensation, general or auto liability, and property insurance costs tend to be cyclical in nature—and in most cases are driven by factors that are completely out of the control of the local businessperson. He says companies are regularly seeing increases of up to seven percent in commercial lines of insurance or workers’ compensation, while the ways in which the Affordable Care Act will impact costs—and how business owners will react to the changes in the national health care system—remains to be seen. In many ways, liability insurance poses an equal amount of uncertainty; the U.S. Chamber of Commerce recently reported that an improvement in litigation laws in New Jersey could lead the way to the creation of up to 94,000 new jobs.

“I believe employers who pay attention to what’s out there and create a safe environment for their employees who aren’t abusive of benefits like workers’ compensation will find a more level playing field, with small increases or even decreases over the course of time,” says Daniel McCutcheon, vice president of strategic development at Widerman & Company. “The wild card is the issue of benefits like health insurance … and with the ACA being so complex, I’m seeing a lot of businesses throwing their hands up in the air in frustration in terms of what this is actually going to do to them, financially speaking; I don’t think anyone sees the costs going down.”

According to Flounders, businesses are being faced with steady increases in the employees’ overall compensation package, salaries, benefits and insurances, and mandatory taxes, and all while costs associated with other business-related necessities like advertising and marketing, raw materials and supplies, utilities and real estate have also continued to rise. “These increases make it much more difficult for us to compete nationally and globally,” she says. “Because the employees are a business’ greatest asset, acquiring and retaining capable and dedicated human talent is a constant challenge … and the employer incurs greater overall compensation costs in order to maintain and motivate a talented workforce.”

However, that doesn’t mean the state’s employers are doomed to fail in the wake of ever-increasing business-related expenses. According to Lisa A. Carney, special projects coordinator for Aflac in Woodbury, businesses are relying on creative marketing, networking and streamlining their delivery systems when it comes to remaining profitable. “The cost of doing business in this state has always been high, but the return can also be high when managed correctly,” she says. That may also mean keeping pricing models competitive or investing more personal monies into the business to keep it running, Flounders notes.

“Income hasn’t fully come back from where it was five years ago, but many businesses have been able to maintain at least a good portion of their workforce, or have been able to bring them back,” Carney says. “I know that policies have been proposed and implemented to make doing business in New Jersey easier, but there is still a long way to go to make us a more business-friendly environment.”

Dealing with the uncertainty
For many, the costs associated with running their business—from workers’ compensation to unemployment to recruitment—are still hitting them where it hurts the most: the ability to attract and maintain employees. Many are seeking new ways to reward their hard-working employees in a way that still proves cost-effective for the business, and there has been a rise in the usage of temporary help.

“In this economic environment, every business is trying to do more with fewer employees,” Flounders explains.

While the region has seen economic growth, some companies are relying on their business acumen to stay afloat instead of hiring new employees, even when necessary. The state continues to have the highest unemployment rate in the region, with some 40 percent of the workforce being employed by a small business. The state legislature has been making efforts to help spur economic growth—starting with addressing burdensome regulations that are placed on local businesses.

According to Daniel Boychuck, chief of Benefit Concepts, an independent wealth management and employee benefits firm in Haddonfield, ever since 2008, employers have been reluctant to expand their businesses. “The uncertainty of ‘Obamacare’ and the one-year delay on the ‘pay or play’ mandate has exacerbated these fears,” he says. The firm is seeing more employers instituting hiring freezes on new employees, reducing their current employees’ hours, eliminating or reducing contributions into employer-sponsored retirement plans, and having to shift the benefit cost increases onto the shoulders of their employees.

“Health insurance premiums are probably the second-largest business expense behind payroll, and many firms will take any opportunity to eliminate or shift this cost onto their employees,” he adds. “A successful firm will recognize the fact that an employee benefit package is used to attract and retain good employees, and they will continue to offer benefits.”

Unfortunately, many businesses are also demonstrating their uncertainty when it comes to individual wealth management and investments; many employers may be reluctant to contribute, or may reduce the amount of their contributions. “We have seen an upturn in the economy since 2009, but we have not seen similar growth on the return of employer and employee contributions into retirement plans,” Boychuck adds. “We believe this hesitancy is still a fear of the unknown.”

It’s the fear of the unknown that is perhaps what is most affecting business’ response to costs; having to wait to see how programs such as the ACA will impact their bottom line is causing many to play it safe when it comes to expanding. “Health care is on everyone’s mind right now, but I’d say hiring is still the biggest issue … companies are worried about what they’re going to have to pay to keep their current employees on board, and all of this uncertainty is worse than knowing exactly what they’re dealing with and being able to create a budget,” says David J. Strout Jr., president of Cettei & Connell Insurance in Woodbury, an insurance broker that helps provide comprehensive products and services. “I think most businesses fear what’s coming at them, and it seems like every time things seem to pick up and people are feeling hopeful, there’s a government shutdown or a debt ceiling deadline and everything stalls again.”

Ways to curb the costs
Fortunately, employers don’t have to go it alone when it comes to navigating costs. In particular, when it comes to the ever-changing legal and statutory environment, the small business owner is always going to have to work hard to remain educated about any changes that could impact their business. “Short of having legal advisors on staff or on retainer, the business owner needs to have resources that can be relied upon to navigate the business minefield, like the Chamber of Commerce, industry-specific associations, local business-to-business groups, contracted service providers, the Better Business Bureau and the Internet,” Flounders advises.

Additionally, PEOs have been available in New Jersey for 15 years, but employers may not realize they offer the ability to tap into the buying power of a much larger group, and combine that with the sharing of employer liability and the opportunity to recoup time to focus on the core business. “Small- to mid-size business owners are becoming more and more interested in the PEO model as a means to cut costs and improve the bottom line,” Flounders adds. “It’s imperative that an employer has a strong relationship with its provider or broker, and both parties can then determine the most effective and affordable benefits to make available to the employees.”

Employers can also consider teaming up with an independent insurance agent who represents an array of companies and can compare rates from 10 to 15 providers at once. “You can sit down with an independent insurance agent that you trust and let your business grow with them … they’ll learn your business and tell you what you need to know to make sure that your cash flow isn’t affected by mistakes you may make when it comes to offering benefits like workers’ compensation,” Strout says.

According to Dumbleton, many South Jersey businesses are finding that they can better control insurance costs through the effective utilization of an independent broker, who can assess the firm’s exposures, quantify their total cost of risk, and provide the employer with the knowledge and tools to help reduce their risk—and, ultimately, lower their costs.

“Understanding and controlling those factors that impact the cost of commercial insurance enables business owners to more effectively negotiate and purchase the coverage they need,” he says, noting that among the other solutions available to them are group captive insurance companies. Once exclusive to Fortune 500 companies, these alternative risk financing firms are now available to middle-market firms that are seeking innovative ways to manage expenses like workers’ compensation, liability and group health insurance.

“A group captive can help a business avoid these unpredictable cycles and can help guarantee that a business is paying the lowest possible cost of insurance,” Dumbleton says. “Identifying and working closely with a trusted independent broker or advisor can dramatically reduce, and ultimately control, your insurance costs.”

A similar concept applies when attempting to navigate the cost of providing health care benefits to employees. “Many small businesses have found that navigating the health care arena is tricky at best, but if they have a responsible advisor, they can often manage to maintain some type of coverage for both them and their employees,” Carney says. For many businesses, that may mean cost-sharing tactics that have altered the way people purchase health care coverage; for example, if both spouses in a marriage are working, they may find the traditional family plan has diminished significantly and opt to rely on completely different individual plans through their respective employers.

“Many businesses may, for now, retain their benefit plans if they currently have one until they see how the market plays out over the next year or two … for businesses with more than 50 employees, they are now bound by more regulations, which will require more employee education, restricted cost-sharing and added documentation,” Carney adds.

Boychuck notes that when the government becomes involved in a privately offered benefit like health care, costs may increase for the employer, who is then forced to pass them on to their employees, eliminate jobs and decrease business expansion. “The individual mandate of health care reform is dependent upon the young and healthy enrolling in the marketplace, but many will find the penalty is much cheaper than the premium,” he adds.

The bottom line when it comes to juggling the costs of doing business may very well be to seek assistance. For the small- to mid-sized business in particular, professionals ranging from insurance brokers to accountants are there to help make sense of increasing costs and help employers maximize their profitability. “As a businessperson, you do have some control over these costs, and my No. 1 piece of advice is to make sure you’re getting excellent advice on your health care, retirement, reimbursement, workers’ compensation. … There are professionals available to you who will help you come up with cost-effective, long-term solutions for remaining profitable in South Jersey,” Dumbleton says.

Published (and copyrighted) in South Jersey Biz, Volume 3, Issue 10 (October, 2013).
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