HUFFINGTON POST
01/30/2013 12:27 pm ET Updated Jan 31, 2013

Small Business Owner's Obamacare Fix: Turn Employees Into Corporations

A San Diego-based entrepreneur has proposed a solution for small business owners who face rising payroll costs under Obamacare: Cut staff and outsource.

Paul Christiansen, founder of the tech company Quorim, wrote a column published in The Wall Street Journal this week suggesting that small employers could “outsmart Obamacare” by shrinking payrolls and operating with only a tiny number of core employees who outsource tasks to contracted workers.

“Thousands of small businesses across the U.S. are desperately looking for a way to escape their own fiscal cliff,” Christiansen writes. “That’s because Obamacare is forcing them to cover their employees’ health care or pay a fine.”

Some business owners have responded to the new law, which requires companies with more than 50 full-time workers to offer them health care coverage, by laying off staff, cutting hours or raising prices.

But for many firms, Christiansen says, a better move is to push workforces under the 50-employee limit by offering current employees contracts for doing their work as a “corporate entity” instead of as an “employee.”

“It's not about replacing employees with contractors, but about replacing employees with corporations,” Christiansen writes. “There is almost nothing that cannot be outsourced," including marketing, IT and manufacturing.

Christiansen calls the strategy “going protean,” referring to the concept of “Protean Corporations,” first described in Silicon Valley journalist Michael Malone’s 2009 book “The Future Arrived Yesterday.” Protean corporations are defined by their ability to “shape-shift” and rapidly adapt to market forces, often tapping contracted talent to do so.

While it may be easy to imagine a technology company going protean by paring down its workforce and outsourcing tasks to contracted entities, it’s harder to imagine in the restaurant industry, which has been among the fastest to react to Obamacare. One fast-food franchise owner recently announced that he would have to cut employees' hours because of the new law.

But Christiansen says it is possible, theoretically, for restaurants to adopt the protean model. “Suppose there was a company, not unlike a professional employer organization (PEO), that set up a corporate structure for individual restaurant waiters, who are owners in the PEO-like organization,” Christiansen tells The Huffington Post. “It could be eight waiters or 10 or anything up to the magic number of 49 who bill the restaurant for their services.”

“We’re dealing with things that don’t exist but have the theoretical possibility of existing,” Christiansen adds. “Right now, we have as the default employer-employee relationships, but that whole paradigm is potentially problematic as we have more and more restrictions imposed by government.”

But according to Malone, small companies are going protean regardless of changes to America’s health care law, which take effect in January 2014.

“Even without the pressure of Obamacare, taxes and other government regulations, the protean model for organizations seems to me inevitable because of larger forces like competition, the need for organizations to adapt and change quickly, and the atomization of society created by Moore's Law and emerging technology,” Malone says in an email to The Huffington Post. “Obamacare has just accelerated this evolution.”

Multiple studies support the claim that, long before Obamacare, technology allowed businesses to operate with fewer employees and outsource work more easily.

The Kauffman Foundation, an entrepreneurship advocacy group, identified this trend in a 2011 report called, “Starting Smaller; Staying Smaller.”

Its author, Robert Litan, wrote that “since at least the middle of the last decade and perhaps earlier” new companies were “opening their doors with fewer workers than the historic norm and were relatively reluctant to expand their workforces even during good economic times.”

Silicon Valley entrepreneur Naval Ravikant predicted last year that technology would inevitably shrink the size of companies and create a world without big corporations.

"The contract-work trend is going to increase," he told PandoDaily. "The size of your average company is going to decrease. And we're going to see more and more billion-dollar businesses built by four or five people, and it's going to stay at that."

Christiansen refers to the change as a corporate innovation, rather than belt-tightening.

"Bill Gates' vision of a PC on every desk became a reality quicker than anyone could have imagined, but the vision of a corporation for every citizen could be a reality too. Particularly if realities like Obamacare continue to upset the status quo."

Are you a business owner making changes because of Obamacare? We'd like to hear from you. E-mail nhindman@huffingtonpost.com.

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