Why “Total Compensation” Might Fail to Meet the ACA’s Employer Mandate

Apart from it being total bullshit, I’m not sure that the “total compensation” crowd has fully thought through their proposal, particularly when it comes to health care benefits.

Because total compensation would allow employers to deduct from their minimum wage obligation the cost of providing health insurance, it effectively shifts the entire cost of health insurance premiums onto the backs of minimum wage workers. Accept your employer provided health insurance and the cost of the employer’s share will be deducted from your paycheck. Cancel your employer provided health insurance (say, because you are covered under your spouse’s insurance), and your take-home pay will rise according.

Whatever your decision, your employer’s cost of labor remains exactly the same. As such, your health insurance benefit ceases to be a “benefit” when your employer’s share of the premium is effectively zero.

And yet under the Affordable Care Act (you know, “ObamaCare”), employers with 50 or more employees will soon be required to offer  affordable coverage to all of their full time employees—”affordable” meaning that the worker does not have to spend more than 9.5 percent of income on premiums.

So what constitutes “income” and what constitutes “premiums” under a total compensation system? These are questions that would surely be litigated, but a quick look at the typical American pay stub makes clear that your federal taxable income (the relevant figure for ACA purposes) is your compensation minus the cost of your health insurance premium. So if your entire premium—including the alleged employer share—were deducted from your paycheck, it would lower your income accordingly.

Now presume a total compensation $15 minimum wage in which your only benefit is health insurance at a cost of $2 an hour ($344 in monthly premiums divided by 172 hours of full time work), bringing your federal taxable income to only $13 an hour. But your $2 an hour in premiums would come to more than 15.3 percent of your $13 an hour income, meaning that your premiums would not qualify as “affordable” under the 9.5 percent rule of the ACA.

Business lawyers might argue that the employer portion of the premium should not be counted toward the employee’s insurance premium costs, but that’s not how it would appear on the pay stub. Both portions of the premium would be listed as deductions to be subtracted from gross earnings. Thus any distinction between the two becomes purely fictional.

Throw in additional deductions under total compensation, and the employer’s ability to meet the ACA employer mandate becomes even less mathematically plausible, exposing the employer to up to $3,000 in annual penalties per employee. Like I said, I’m just not sure the total compensation camp has entirely thought this thing through.

But perhaps just as important to the larger discussion is how the ACA employer mandate rules once again expose total compensation for the lie it is: it simply does not pay $15 an hour. Thus any suggestion that total compensation proponents “aren’t arguing with the $15-an-hour goal,” is a lie as well.


  1. 1

    screed spews:

    And if you think the ACA employer mandate ever gets implemented, I’ve got a bridge to sell you.

  2. 2


    @1, My god, when will folks give up on killing Obamacare? Employer mandate starts 1/1/2015 for businesses with 100 or more FTEs, 1/1/2016 for businesses with 50 to 99 FTEs. Doubtful that will be delayed again.

  3. 3

    Anoy! spews:

    The ACA isn’t the only smell test that the Total Comp doesn’t pass. But when Dave Meinert and his cohorts find their asses in court being sued they will have wished they thought better when they had the chance.

  4. 4

    Roger Rabbit spews:

    Speaking of smell tests …

    “It turns out a group of executives is getting a great deal on corporate pay — while lobbying against providing their workers with a higher minimum wage.

    “Top execs at restaurant chains are benefiting from a tax loophole that allowed their businesses … to deduct … ‘performance pay’ from their corporate income taxes …. That helped the chief executives of the NRA’s 20 largest members take home more than $662 million in fully deductible ‘performance pay’ over the past two years, which reduced their corporate tax bills by $232 million, the study found. …

    “‘Taxpayers are really subsidizing these huge pay packages,’ Sarah Anderson, Global Economy Project director at the Institute for Policy Studies, told CBS MoneyWatch. …

    “One of the biggest beneficiaries of the tax loophole is Starbucks (SBUX), whose chief executive Howard Schultz took home $236 million in exercised stock options and other ‘performance pay’ from 2012-13, the study found. The upshot? An $82 million taxpayer subsidy for the company, which the study notes could pay for a $10.10 hourly rate for its 30,507 baristas for an entire year. …

    “Other big beneficiaries of the tax loophole include Yum! Brands (YUM) CEO David Novak, who earned $67 million in performance pay over the 2012-2013 period, lowering the company’s tax bill by $23 million, IPS found. It also says Chipotle has two CEOs, Steve Ells and Monty Moran, who racked up a tax deduction for their company of $69 million through the tax break.”


    Roger Rabbit Commentary: Okay, so let me see if I understand this correctly. Twenty CEOs of restaurant chains got $662 million of “performance pay” in a two-year period — an average of more than $33 million each — and their companies got tax credits of $232 million to help pay for those bonuses. Hmmm.

  5. 5

    Roger Rabbit spews:

    I have a suggestion. Instead of we taxpayers subsidizing huge bonuses for restaurant CEOs, why not spend that money on more food stamps for their $7.25-an-hour workers?

  6. 6

    Roger Rabbit spews:

    People who claim America is going socialist are right, but they’re confused about who gets the socialism.

  7. 7

    Roger Rabbit spews:

    Okay, so if Starbucks CEO Howard Schulz gets over $100 million a year of bonuses, and taxpayers chip in over $40 million a year of that, then are we out of line to ask him to support a $15-an-hour minimum wage for Starbucks employees who live and work in Seattle, where apartment rents start at $1,200 a month?

  8. 8

    Sea boy in LA spews:

    The $3000 fine is cheaper than the cost of the insurance – there’s no downside for a business to not comply with this rule.

  9. 9


    @8 You miss the point. Businesses that already provide health benefits are looking to deduct the cost of those benefits from their minimum wage obligation, but in doing so would trigger the penalty under the employer mandate that would eat up all or most of the savings they were seeking under total compensation. So there’s very little to gain.