The cost of health coverage and other employee benefits, the Affordable Care Act (ACA), and the level and volume of government regulations are cited as the top three concerns of midsized business owners and executives, according to a new study by the ADP Research Institute®, a specialized research group within ADP®, a leading global provider of Human Capital Management (HCM) solutions.

In its second year, ADP’s study, “Top Concerns and Challenges of Midsized Business Leaders in 2013,” examined the concerns, perceptions, challenges and plans of more than 1,000 business owners and executives at U.S. midsized companies, categorized as those with 50-999 employees.

Cost of health coverage

Topping the list of midsized business challenges in 2013 was the cost of health coverage and benefits (70%), made even more complex by employer requirements associated with ACA regulations.  Two-thirds of midsized business owners said the cost of providing employer-sponsored medical health insurance to employees was a barrier to achieving business goals.

ACA legislation rates second among business owners’ concerns (59%).  The study reveals that as ACA regulations loom, there is a stark disconnect between executives’ perceived ability to comply with the regulations and having a thorough understanding of the legislation and its implications on the organization. 

In fact, 70% of midsized company executives believed their firms will be in “complete compliance” with ACA, while 66% of HR decision-makers were not confident they understand ACA, and nine out of 10 were not confident that their employees understand the impact of ACA on their benefits and benefit choices. Even more interesting is the double-digit increase year over year of ACA as a ranked concern – a 16% increase from 2012.

Too much red tape

The third most pressing business concern in 2013 was the level and volume of government regulations (54%), as issues related to compliance and management of employee records are often more burdensome for midsized businesses.  While the vast majority of respondents (83%) were confident that they are compliant with payroll tax laws and regulations, nearly one-third of all respondents reported unintended expenses as a result of noncompliance in the past 12 months, pointing to a potential “compliance overconfidence” among executives. 

Plus, this overconfidence is costing businesses – of those fined or penalized, midsized firms report an average of six fines or penalties per year.  These are costs businesses can ill afford in today’s economic environment.  Interestingly, organizations processing payroll in-house received almost twice as many fines or penalties as those that outsource processing to a third-party firm.

Security breach risks

As midsized business owners manage more complex issues in an age of digitalization and globalization, ADP’s study found that a large percentage of midsized business owners were putting themselves at risk of costly security breaches, natural disasters and noncompliance. 

Consider that a majority of midsized business owners surveyed (57%) still relied on paper-based records for storing and managing employee records, and nearly six in 10 have felt a financial impact of inaccurate data. 

Further, 20% of midsized business owners and executives said their company had been impacted by some kind of natural disaster in the past two years.  And with 13% of midsized businesses reporting operations outside of the United States, the risk midsized businesses face regarding the security and accessibility of their employee records is increasingly critical to business operations.  

The study revealed a gap between perception and reality as business owners struggle to anticipate economic performance.  When surveyed in 2012, only 15% of business owners expressed confidence in 2013’s economic outlook.  However, when surveyed this year on last year’s performance, 61% judged that the economy had improved in the previous 12 months. 

While their overall outlook on the economy remains weak, respondents may be better adapting to economic realities that in the past have impacted their ability to meet business objectives.  The study showed significant declines in the number of respondents who expressed concern about economic issues including fuel costs, cash flow, supplies and credit availability.