Tag: Business Strategies

SBA Loans: Are They A Revolution In Self-Storage Financing?

As of the release of the Standard Operating Procedures (SOP) 50 10 (5) (C), effective October 01, 2010, if an entity is “primarily engaged” in the provision of mini warehouse / storage services, not the leasing of real estate, it falls under the passive businesses currently eligible. In short, self-storage facilities are now eligible for small business financing from the Small Business Association (SBA).

Why consider SBA financing?

Self-storage owners have good reasons to consider using the SBA program:

Leverage: The SBA allows a business owner to leverage up to 90 percent of the total project cost.

Higher loan amounts: The Obama administration has made the SBA program very attractive, by increasing the SBA loan ceiling to $5 million.

Bundling: The SBA allows owners to bundle project costs, including working capital; furniture, fixtures and equipment; architecture, etc.

Long Term Fixed Rates: The 504 program fixes rates on a portion of the loan for 20 years.

How does the SBA work?

The SBA is a U.S. government-backed agency that guarantees between 75 to 90 percent of the loan amount issued by a commercial bank. The SBA has two programs from which to choose.

SBA–504

  • Two loans; a 1st up to 50 percent of the cost and a 2nd up to 40 percent of costs; totaling 85 to 90 percent of costs.
  • The bank provides the first loan with a 20 to 25 year amortization, fixed for 5 to 10 years at market rate. The prepayment is usually a step down, such as 5,4,3,2,1.
  • The CDC, or Certified Development Corporation, provides the 2nd loan. The CDC is a non-profit organization whose sole purpose is to enhance the economic viability of the local region. This loan is typically fixed for 20 years at low rates. The prepayment penalty is a 10 year declining, i.e. 10,9,8,7,6…..to 1.

The Pros of the SBA-504 include long-term fixed rates; assumability features; and lower cost of money for longer term. The Cons include a hefty prepayment penalty on the 2nd loan; a lot more people have to approve the loan; increased costs because the 2nd is a debenture; and there are VERY FEW banks currently wiling to make the seemingly same senior portion of the 504 loan – especially for self-storage credit.

SBA–7(a)

  • 1 loan that is all funded by the local institution.
  • 25 year fully amortizing loan, based on Prime Rate + Up to 2.75 over.
  • Fully floating, and possible fixed rates.
  • 5,3,1 prepayment penalty.
  • The Pros of the SBA-7(a) include a greater likelihood of approval for self-storage facilities than the SBA-504; only one simple loan to manage; currently lower rates; and ability to get out of the loan after 3 years if things are going great. The Cons include floating rates in an environment where inflation could rise; no cap on the rate; and the requirement for additional collateral for the SBA to latch onto.
  • Succeeding through the SBA Is As Easy As 1, 2,3…
  • To succeed in applying for SBA financing you will need to be flexible, patient and cooperative with your loan originator. Here are three easy steps to ensure your success in procuring an SBA-backed loan:
  • Collaborate: Your SBA consultant will provide a screening test to make a preliminary determination of the likelihood of approval for a SBA loan. The screening test will cover finances, profiling, property and project sizing, individual cash flow underwriting and economic analysis.
  • Collecting: You will receive a very detailed checklist of financial documents which is tailored to you and your situation. From here all you need to do is put your head down and start going down the list.
  • Conceptualization: Now it is the job of the consultant to conceptualize a plan and to execute a proposal. Be prepared to roll up your sleeves and assist in making your dream a reality.
  • The SBA process is simple, but not necessarily easy. As long as you are knowledgeable and prepared, your chances of success are good.
  • Next Steps
  • If you are looking to purchase a loan for, or to refinance a self-storage facility, here are some eligibility
  • Have you made less than $5 million in the last two years and have a net worth of under $15 million?Do you have sufficient outside cash flow to support the debt service 1.2 times?
    1. Do you have a FICO score over 680?
    2. If you can answer in the affirmative to all three, then it is time to take the next steps and to get started.
    3. From “SBA Loans: Are They a Revolution in Self-Storage Financing?” by David Kotter, the Principal Founder of Integrity Capital, LLC. This article is provided courtesy of Setnor Byer Insurance & Risk with the permission of Mini-Storage Messenger Magazine.© MiniCo, Inc. All Rights Reserved. It is not intended for further reproduction/distribution without the exclusive permission of MiniCo, Inc. http://www.ministoragemessenger.com

Asking the Wrong Questions

Often times in business, we have the opportunity to get exactly what we want and need. The problem is, we just don’t ask for it correctly.

Take, for example, something I did just the other day. I wrote an article and sent it to one of my trusted advisers. “Please see if there are any glaring mistakes,” I requested.

She sent it back with some grammatical and typographical edits. Nothing more. No comments. No “great job.” Nada. “What did you think of it?” I asked.

“I don’t know,” she said. “I just read it for mistakes.”

She did exactly what I asked. The result? I wasted her time and mine by asking the wrong question.

I am fortunate enough to have a handful of brilliant people in my life who are ready, willing and able to help me sort through issues, give me expert advice and new perspectives. Instead of utilizing these great minds, am I just asking them to find mistakes? What a waste!

Had I framed my request correctly, (i.e. Here’s an article I wrote and here’s what I’m trying to say. Can you tell me if it makes the point well? Does the concept resonate?) I would have gotten what I needed.

If you have your own brain trust, be sure you use their time wisely. Ask for what you need and magically, you just might get it!

Getting an ROI on charitable involvement

Getting involved in charitable and community organizations as a new business development strategy is hardly a new notion. However, unless it is purely altruistic, participation needs to be carefully calculated so that you get an ROI on your investment of time, resources or money.

Some of the biggest mistakes I’ve witnessed are:

  • Companies writing checks for banquets or galas in the hopes of “running into someone important” at the event
  • Choosing to support an organization because an important prospect happens to be listed on the letterhead without fully researching their accessibility or level of involvement
  • Choosing to commit time and energy to organization without thoroughly cross-referencing the board and membership with a potential client list

Before you get involved with any organization for the purpose of business development, consider the following:

  • Do you have some level of passion for the cause regardless of the business benefits?
  • If your objective is to shine or show your company in a brighter light, you need to be prepared to exceed expectations. Any less of an effort could backfire.
  • Find the right fit
  • Research your clients and potential clients to see if there is a common cause they support. Often times, leaders in an industry band together behind a certain organization. That’s the place you want to be.
  • Do the math
  • Create a budget of time and money for your community involvement and treat it like marketing dollars. What will you spend and what do you expect in return? You can do well by doing good if you plan ahead and implement a strategy.
  • Go big or go home
  • Choose one organization and make it your own. A big check or a big contribution of time gets a lot more attention! For example, instead of buying two tickets to 5 different events, but a table at one event so that your name is listed as a sponsor or patron. Donate auction items so your company is recognized as a contributor. If you choose to make a contribution, schedule a meeting with your targeted prospect to discuss the organization and its missions. If that person is truly engaged, they will be happy to sit down with you and explain the benefits of aligning with that group. Deliver the contribution directly to them. There’s no better way to establish a bond.
  • Communities thrive when businesses show their support. Plan correctly and your business will thrive as well.

Passionate Curiosity

There was a great article in the New York Times a while back. Adam Bryant, author of the weekly Corner Office column, compiled the information he garnered from interviewing top C.E.O.’s to explore traits common to successful corporate leaders. One trait he identified was “passionate curiosity.”

Coined by Neil Minow, co-founder of the Corporate Library, passionate curiosity is the desire to, I should say the need to – know the how, the what and the why of everything. C.E.O.’s aren’t necessarily the smartest people in the room, Bryant explained. However, they are truly passionate about all aspects of their business. He likened the quality to a curious child. What if I did it a different way? How can I change it to make it better, faster, quicker, more profitable?

Passionately curious leaders are adamant about hiring like-minded employees. While it’s not necessarily easy to identify this type of long-term, sustainable energy in a candidate, the C.E.O.’s interviewed did identify 3 primary keys:

  • How do they deal with adversity?
  • Do they challenge the status quo?
  • Do they take ownership of the job?

Are you passionately curious? I find a lot of my clients start their businesses or jobs with that deep in- their- gut type of drive, only to have it fade over time. The intensity of a long-term business commitment can erode passion: the minutia of day to day operations, tough times, lost clients and difficult employees can all cause our energy to ebb.

The key to success through passionate curiosity is sustainability. What can you do to maintain high levels of passion about your job or business?

First, you need to take ownership of the fact that you are responsible for maintaining your passion. If you don’t nurture yourself, it won’t be hard to let employees, clients or colleagues suck you dry.

Keep yourself inspired

Whether it’s through reading, keeping a journal, trying new experiments with your business or hobbies, keep a constant flow of new information and experiences going that will help trigger ideas and new perspectives.

Make “What if?” your favorite question

What if I hired a different person to do that job? What if I bundled my products differently? What if I changed my work flow? Consistent questioning of your concept and processes will lead you to new and better solutions.

Find passion partners – (no, not that kind)

Identify friends and colleagues who are, in your opinion, passionately curious. Arrange to meet with them on a regular basis and use these meetings as forums where participants are invited to throw out the biggest, best and dumbest ideas. No judgments allowed. You’ll all share tremendous energy and inspiration.

Allow yourself time away from the day- to- day minutia

The biggest killer of big thinking is the mundane. If you can, delegate some of the daily chores. If you can’t, schedule time to get away from them. Even if you take an hour a week to think quietly and create, you will reap the rewards of big picture thinking and keep yourself on your toes.

Whether you own your company or work for someone else, we are all the “boss” of our destiny and success. Nurture your passionate curiosity to help you play at the highest level.

Convenience vs. Accessibility. Are we sabotaging our businesses?

In an effort to avoid annoying and unnecessary communication, are we insulating ourselves from opportunity?

Take this situation that happened just yesterday. I had a lead for someone and didn’t have his email address. I called the receptionist to get it. She, rather unpleasantly, answered, “That information’s not available.” Not available? There were several more gracious ways she might have handled the situation, but in an effort to protect her boss from the inconvenience of an unsolicited email, she lost him a great lead. Why would I refer business to a company with a culture that doesn’t welcome communication?

It got me thinking about all the times I’ve unsuccessfully dealt with automated receptionists, voice mail hell and websites that offer only an automated contact form or a general email address. Any company that won’t let me communicate with someone personally tells me their convenience is more important than my business.

By contrast, I applaud websites that list everyone’s name, title, extension and email, including the customer service people and CEO. That’s a company that wants to do business with me on a personal level and makes it easy to connect with them.

It’s time to reframe the issue of communication. Have we forgotten it’s the lifeblood of our businesses? We spend thousands of dollars creating websites, brochures and Facebook pages that advertise our companies, yet when someone actually tries to communicate with us, we make it difficult. Does that make any sense at all?

Think of every phone call and email as a potential opportunity. Sure, it might be a vendor that can be a bit annoying, but have you considered, that with a little nurturing, even a vendor you don’t do business with can be a potential ambassador for your company? By avoiding communication, you could be missing leads, a great new employee, the opportunity to build a beneficial relationship or simply the chance to tell someone more about your company, thereby spreading the word.

The most professionally run companies make sure correspondence of any kind is addressed. They understand the need to create a great impression through responsiveness. Even small businesses with limited resources need to take that lesson and run with it.

Sometimes, business leadership becomes so removed from office processes, they don’t even realize what’s happening. That’s no excuse. Test your own company’s friendliness quotient: Anonymously call in to your office to connect with various people and departments. You might be surprised how difficult it is.

Check your website. Are key contacts available? Even customer service contacts should have a name so people feel a personal connection.

Make sure your employees are trained to deal with any type of phone call in a warm and welcoming fashion. Simply transferring someone to another voice mail is not an acceptable solution.

Yes, accessibility takes a little effort and might be inconvenient. But your reputation as a responsive and open business is worth it.

PS – I am shocked at how many voice mail messages say “I’ll get back to you at my earliest convenience.” When did doing business become about your convenience?

 

Angel Cicerone

angel@angelcicerone.com

Maximizing Protection by Pairing Ordinance and Law Insurance with Business Interruption Coverage

Building ordinances and laws (building codes) are upgraded regularly to improve a structure’s resistance to windstorm, earthquake, fire, and collapse. Since some of these changes apply to new construction on a go-forward basis, it is not uncommon for older buildings to increasingly depart from current code requirements over time. Since it can be expensive to update an older building to comport with current building codes, building owners must have a plan to cover the cost. Even though ordinance and law insurance may contribute to the cost, the number of owners electing to forego such coverage is surprisingly high.

Ordinance and Law insurance is designed to pay for the extra expense of rebuilding to comply with ordinances or laws, such as building codes, which did not exist at the time the building was originally built. If an owner is required to rebuild pursuant to new codes, the cost is virtually certain to exceed the cost of merely restoring the building back to its pre-loss state.

Unfortunately, it is not uncommon for inexperienced building owners to first learn of this possible expense until after experiencing a property loss, since the loss is often the trigger for the property owner’s obligation to bring the property up to current code. For example, if an older building suffers severe structural damage from a fire, the property owner may be required to implement current building codes in the repair or reconstruction of the property. Since this can be a very expensive proposition, the value of obtaining ordinance and law coverage is obvious.

Although ordinance and law coverage is an important part of a building owner’s insurance program, it does not necessarily protect against all risks associated with bringing a building up to code. What about losses caused by delays in rebuilding the property caused by the need to comply with the current building code?

For example, consider a building damaged by fire. Restoring the building to its pre-fire condition without fixing any code violations would take one month, whereas correcting all of the code violations would extend the restoration by three months. The building owner would be out of business for an additional three months by virtue of complying with new building codes. Even in the best of circumstances, such a suspension of operations can cause severe financial hardship. However, there is a type of insurance coverage designed to protect building owners against such a loss—business interruption coverage, which can be obtained in conjunction with ordinance and law insurance.

Business interruption insurance generally covers reductions in net income and provides a business with the funds needed to pay normal operating expenses during periods of time when a business unable to continue its operations. Such coverage is often critical in the event of a lengthy property closure because expenses do not stop. Indeed, payroll, mortgage/rent payments, money owed to suppliers, taxes, and other continuing expenses must be met, and business interruption insurance may keep badly needed capital flowing when it is needed the most. However, if business interruption coverage is rejected, a property owner will be required to either fund the continued business operations or survive without the income those operations generate.

Although ordinance and law insurance provides valuable protection against potentially debilitating expenses, combining it with business interruption coverage fills a potentially significant gap in a building owner’s insurance portfolio. The combination of the two increases the likelihood of surviving not only the initial property loss, but the protracted suspension of operations resulting from the obligation to rebuild in accordance with current building codes.

While the decision to obtain ordinance and law insurance and business interruption coverage should be easy, understanding specific policy provisions and terms may be more difficult. Since there may be variations among different policy forms, it is important that you consult with an experienced insurance agent to discuss your options.

If you would like more information about ordinance and law insurance and business interruption coverage, please contact us.

‘Tis the Season-for Celebration or Litigation?

The halls have been decked, and employees have donned their gay apparel; everyone appears to be in good cheer at the office holiday party, held on a Saturday night at an off-site location. But there’s a problem: some employees are passing around “gag” gifts, items overtly sexual in nature. Making matters worse, these employees are telling lewd jokes and sharing lurid stories about the sex lives of celebrities. One employee, Susan, is clearly distressed by the goings-on. When Susan conveys her disapproval to the group, everyone laughs and continues the racy conversation and joke-telling. Even her immediate supervisor Nancy shrugs and tells Susan, “It’s a party. Ignore it if it bothers you.” Susan then leaves abruptly.

On Monday, Susan informs the Human Resources department that she’s thinking about filing a hostile work environment harassment complaint as a result of her co-workers’ crude and offensive behavior at the party. The HR director tells Susan that because the event occurred off-site and on the weekend, her claim has no merit. Is the director correct?

In fact, no. Susan’s complaint may support a hostile work environment claim because employers can be held liable for inappropriate conduct at a company-sponsored event, including one that is held off-site and “off the clock.” Wisconsin attorney Randall Gold points out that “it is critical that both employees and employers realize that the same rules governing harassment during normal business hours apply at the holiday party.” Furthermore, Gold notes that “the corporate holiday party is a classic breeding ground for bad behavior that may cost a company time, money, and valuable employees.”

Statistics seem to bear out Gold’s observation. The Insurance Journal has reported that sexual harassment claims spike in January. A 2004 survey conducted by Harris Interactive® revealed that 29 percent of adults have experienced or witnessed sexual conduct between co-workers at office holiday parties. Of course, such sexual contact does not necessarily constitute harassment, but the potential for trouble is there. Recently, a court in Illinois stated, “…at the risk of playing the Grinch…office Christmas parties also seem to be fertile ground for unwanted sexual overtures that lead to Title VII complaints.” Atlanta psychologist Dr. Linda Tillman speculates that because office parties “blur the boundaries between one’s professional and social lives,” both employers and employees may be in more jeopardy than they realize. In fact, concludes Alan Kopit, legal editor of lawyers.com, “an office party can be the site of a sexual harassment situation just as much as the office.”

So what can employers do to avoid being haunted by the Ghost of Christmas Party Litigation? Consider taking the following preventive steps:

Publish or Perish: Before the party, employers should redistribute the company’s sexual harassment policy, making sure that all employees read it and submit notification of having done so. Employees should also be reminded that while it may be “the season to be jolly,” a holiday party is no excuse for inappropriate behavior, which will not be tolerated. The company’s general code of conduct should also be redistributed in advance so that employees are fully aware of the company’s expectations for behavior.

Do as I Do: Managers and supervisors should be trained on proper conduct for the holiday party and should be a visible, positive presence there; as company representatives, they should set a professional example for all employees. Also, managers and supervisors should be instructed not to invite employees to get-togethers at their houses or at local pubs; such “after-parties” are frequently occasions for harassment incidents.

Dress for Success: The dress code for the party should be clearly established in advance. While provocative dress is never justification for sexual harassment, employees should be mindful that though the occasion is a social activity and not a business function per se, it is still a gathering of professionals, and appropriate dress for the occasion is expected.

Take My Wife-Please: Employees should be encouraged to bring spouses or significant others to the party; their presence can discourage intra-office romances that might pose problems later. Also consider inviting important clients-employees are much less likely to engage in inappropriate behavior if they know that the company’s business associates are at the party.

Sign on the Bottom Line: Employees should be asked to sign a release that limits the company’s liability for employees’ participation in company-sponsored extracurricular activities. While such a release does not confer absolute legal protection to employers, it may limit their liability and can serve as a reminder to employees that they are responsible for their conduct.

To Drink or Not to Drink?

Perhaps an even more dangerous aspect of the office holiday party is the serving of alcohol, which not only exposes a company to litigation but also endangers lives. The data compiled by the National Highway Traffic Safety Administration (NHTSA) are, quite frankly, sobering:

  • In 2005, 16,885 people died due to alcohol-related traffic accidents, a figure essentially unchanged from 2004; an estimated 254,000 persons were injured in such crashes.
  • The rate of alcohol involvement in fatal crashes is more than 3 times higher at night than during the day; 52 percent of fatal crashes on weekends involved alcohol, an increase of 22 percent in the rate of weekday accidents involving alcohol.
  • The holiday season between Thanksgiving and New Year’s Day is one of the deadliest and most dangerous times of the year due to an increase in drunken driving crashes.

The U.S. Department of Labor (DOL) states, “Improper use of alcohol may expose employers to liability under tort, workers’ compensation or other laws…an employer may be held liable if a person consumes beverages at a company-sponsored party and subsequently causes a crash.” The DOL also advises employers to consult and address state and local laws regarding employers’ legal responsibilities when serving alcohol at office events.

Of course, the only foolproof method for employers to avoid any litigation arising from alcohol consumption at holiday parties is not to serve alcohol. But since liquor is served at 86 percent of office holiday parties, according to Workforce Management, the DOL offers employers some tips:

  • Make sure employees are versed in the workplace substance abuse policy, which should address the consumption of alcoholic beverages at office social functions. This policy should be posted, distributed, and explained in advance; employees should be asked to acknowledge in writing that they understand and accept the company’s policy.
  • Offer plenty of non-alcoholic beverages at the party as well as liquor.
  • Avoid serving too many greasy, salty, or sweet foods that tend to make people thirsty. Instead, serve foods rich in starch and protein that stay in the stomach longer and slow the absorption of alcohol in the bloodstream.
  • Designate party managers. Assign at least two non-drinking employees the responsibility of monitoring the serving of liquor and implementing the company’s alcohol and substance abuse policy.
  • Arrange for alternative transportation. Make special arrangements in advance with taxi cab companies to take home alcohol-impaired drivers.
  • Stop serving alcohol before the party officially ends. Mothers Against Drunk Driving (MADD) suggests cutting off drink service no later than 90 minutes before the party ends. The organization also stresses that coffee cannot sober up drunken guests-only time can.

Other suggestions include promoting and coordinating a designated driver program in advance of the party; issuing each employee at the party a limited number of drink tickets to prevent excess consumption; hiring professional bartenders who have been trained not to over-pour drinks and to recognize (and stop serving) intoxicated guests; and scheduling party activities that shift the focus away from drinking.

Also, employers should consult their insurance providers to make certain that they are adequately covered for risks associated with company-sponsored events.

While there is no formula that guarantees zero liability, attorney Alan Kopit maintains that “keeping employees from driving after drinking at the party reduces potential liability of the business.”

It is possible to have a fun and safe holiday party. With careful planning, businesses need not be forced to “pout” and “cry” over costly litigation but instead can welcome the New Year with comfort and joy.

Notice of Work-Related Fatality

Do employers have seven days to notify the Occupational Safety and Health Administration of a work-related incident that has resulted in the death of an employee?

No. All employers covered by the Occupational Safety and Health Act of 1970 are required to notify the Occupational Safety and Health Administration (OSHA) within eight (8) hours after the death of any employee from a work-related incident. This requirement also applies to any work-related incident resulting in the in-patient hospitalization of three or more employees. Employers must provide this notice by telephone or in person at the OSHA Area Office nearest to the site of the incident. Employers may also notify OSHA by using the toll-free central telephone number, 1-800-321-OSHA. For each incident, an employer must provide OSHA with the name of the establishment; the location of the incident; the time of the incident; the number of fatalities or hospitalized employees; the necessary contact information; and a brief description of the incident.

In addition to notifying OSHA, employers in some states may have additional notification requirements following the death of an employee. For example, in Florida, an employer must report the fatality by telephone or telegraph within twenty-four hours to the Department of Financial Services. In Minnesota, employers have forty-eight hours to report a death or serious injury that occurred during the course of employment to the state commissioner. Given such variations in reporting requirements, employers should consult with a licensed professional in their jurisdiction to determine all applicable reporting requirements before the need ever arises.

Co-Worker Retaliation under Title VII

One of my employees, after alleging that a popular supervisor sexually harassed her, has also claimed to have been repeatedly harassed by several coworkers angry at her for filing a complaint against this supervisor, with whom they are friends. Could the coworkers’ actions lead to a claim of retaliation under Title VII of the Civil Rights Act?

Yes. In addition to prohibiting sexual harassment in the workplace, Title VII of the Civil Rights Act (Title VII) makes it illegal to retaliate against an employee for making a claim of sexual harassment. Title VII’s anti-retaliation provision protects employees from conduct that would have “dissuaded a reasonable worker from making or supporting a charge of discrimination” under Title VII. The fact that an employer can be held liable for the retaliatory actions of a supervisor is well settled. However, the process for determining whether or not Title VII liability exists for the retaliatory actions of a coworker (i.e., someone without supervisory authority) is not as clear. Noting the inconsistent manner in which this issue has been handled by the federal courts, the Sixth Circuit Court of Appeals recently joined the majority of federal circuit courts that have determined that Title VII does, in fact, protect against coworker retaliatory harassment that is known to, but not restrained by, the employer.

Specifically, the Sixth Circuit agreed that there was “no reason ‘why a different form of retaliation – namely, retaliating against a complainant by permitting her fellow employees to punish her for invoking her rights under Title VII – does not fall within [Title VII’s protection].'” Thus, employers in the majority of jurisdictions must protect their employees against retaliation by coworkers. However, each federal circuit requires a different standard of behavior for determining whether to impose liability on employers for coworkers’ retaliatory acts. Accordingly, employers should consult a licensed professional to learn the applicable standard followed in a specific jurisdiction.

Counting Employees for COBRA

If an employer has 13 full-time employees, each of whom works 40 hours per week, and 10 part-time employees, each of whom works 20 hours per week, can this employer qualify as a “small-employer plan” under the Consolidated Omnibus Budget Reconciliation Act (COBRA)?

Yes.  After a qualifying event, COBRA gives certain former employees the right to elect temporary continuation of health care coverage at the employer’s group rates. COBRA’s continuation of coverage requirement does not apply to a small-employer plan, which is a group health plan maintained by an employer who normally has employed fewer than 20 employees during the preceding calendar year.  Although all full-time and part-time employees are taken into account when determining whether an employer had fewer than 20 employees, each group of employees is counted differently. A full-time employee counts as one employee.  However, each part-time employee counts as a fraction of an employee, with the numerator (the top number) of the fraction equal to the number of hours worked by the part-time employee, and the denominator (the bottom number) equal to the number of hours that must be worked on a typical business day to be considered a full-time employee.

Though this formula may sound complicated, it’s fairly easy to apply. In the situation at hand, the employer’s 10 part-time employees work 20 hours per week out of the 40 hours per week ordinarily worked by full-time employees, thus producing a fraction of 20/40, or ½.  Therefore, each part-time employee is counted as ½ of an employee. Ten employees counted as “half” an employee equals 5 “whole” employees, which, when added to the number of full-time employees, 13, total 18 employees. Since this number is fewer than 20, this employer may qualify as a small-employer plan.