‘Employers Were Mad’

Some businesses are actually trying to do something about the rising cost of health insurance.

Good Morning!

Here are today’s highlights:            

• An IRS press release raises red flags about employee stock ownership plans.

• Businesses continue to switch from emailing customers to texting them.

• When businesses pay for employee training, and the employees leave.

• If the government shuts down, Ami Kassar’s business will struggle—but that’s not his real problem.

HEALTH INSURANCE

Some employers are fighting back against the rising cost of health insurance: “The fight started with the simple goal of helping Indiana employers learn what they were spending on hospital services received by their workers. Gloria Sachdev, who is chief executive officer of the Employers’ Forum of Indiana, launched research that produced a stunning takeaway: They paid the most out of all the states studied. ‘Employers were mad,’ said Sachdev. ‘Literally pounding-on-the-table mad: This is ridiculous. We’ve got to do something about this.’”

• “Most working-age people get their health coverage through their jobs, and employers either pay an insurer to provide the benefit or bear the cost of medical claims themselves. The cost now tops $22,000 a year for a family on average, according to the health-research nonprofit KFF. Hospital care is the single biggest component, amounting to about $449 billion in 2021, the federal government estimates.”

• “A drive for legislation, ultimately supported by companies including the engine maker Cummins and Chrysler’s parent, Stellantis, turned into a brawl. An employer-backed group targeted patients’ phones with digital ads about high prices when they visited hospitals. Hospitals warned of cuts to crucial medical services and government price fixing. There was cursing.”

• “Now the Indiana campaign—and Sachdev, who testified in Congress earlier this year—is getting attention well beyond the state. In places including Texas, Florida, and Maine, employer groups are pushing for legislation blunting hospital costs, saying they are fed up with increasing rates and fees, as well as the failure of private efforts to contain them.” READ MORE

EMPLOYEE OWNERSHIP

Here’s even more reason to be careful when choosing whom to hire to implement an ESOP: “On August 9, the IRS issued a news release, IR-2023-144, warning taxpayers and advisors of ‘numerous compliance issues’ with ESOPs, such as ‘valuation issues with employee stock,’ ‘prohibited allocation of shares to disqualified persons,’ ‘failure to follow tax law requirements for ESOP loans causing the loan to be a prohibited transaction’ and ‘promoted arrangements using ESOPs that are potentially abusive.’ Naturally, this out-of-nowhere release caused quite a bit of bad blood in the ESOP community because the tone of the release made it sound like ESOPs were in trouble.”

• “Since then, the IRS has provided more insight into what triggered the news release, and as expected, most ESOP sponsors should be able to shake it off. We’ve learned that the IRS issued the release to alert interested parties and the employee ownership community that they’ve identified what they’ve termed a ‘questionable transaction’ sold by a small number of promoters.”

• “The good news is that the IRS has made an effort to let the ESOP world know that its concerns only involve a few promoters, and the broader community still has a good reputation. Most plan sponsors who set up ESOPs for the right reason have no need for concern about enhanced IRS enforcement activities.” READ MORE

Another Oregon-based business has chosen a perpetual-purpose trust over an ESOP: “STEM education technology maker Vernier Science Education is changing its corporate ownership to one that will ensure its mission and company values continue after its current leadership retires. The management team announced this week the company will transition to a perpetual purpose trust. It’s an ownership model that removes uncertainty around succession planning and ensures that a company’s values and mission is aligned with ownership. The company is currently a partner-ownership with several owners including founders David and Christine Vernier, who are both in their 70s and own 43 percent.”

• “Locally, the model has been championed by Gresham-based Organically Grown Co. Portland's Grand Central Baking is in the process of trust ownership and Newport’s Local Ocean recently completed the transition.”

• “Vernier had read about what Organically Grown did with its trust ownership and he was familiar with Local Ocean. He contacted the people who worked with both companies through those transitions. Vernier Science Education is working with consulting firms Lumo Group and Purpose Owned.”

• “‘This path is attractive to a lot of successful private companies who have always put their mission first and foremost as they have grown their companies,’ said Natalie Reitman-White, principal at Purpose Owned. ‘Perpetual purpose trusts allow companies to ensure their company's stay independent, that the leadership is bound to deliver results to the purpose into the future, and that the profits are used to reinvest in the company and benefit the stakeholders.” READ MORE

MARKETING

More businesses are switching from email to SMS: “When it launched 10 years ago, GreenPal, an app connecting people to local lawn-care services, initially relied on emails to customers about booking yard work or paying their bills. It got few responses, yet its customer-service team was inundated with calls. ‘We'd say, We sent you five emails, and they'd say, Well, I don't check my email,’ Bryan Clayton, the company's co-founder and CEO, told Insider. After a year in business, the Nashville, Tennessee, company decided it had to find a new way to communicate with customers, so it turned to short-message service, SMS, also known as text messaging.”

• “Data indicates that people check their phones every 10 to 12 minutes and spend most of that time reading and responding to text messages. Businesses have caught on — in a survey from SimpleTexting, nearly nine in 10 companies polled said they had communicated with their customers via text in the past year.”

• “SMS has helped GreenPal reactivate cold accounts and reconnect with people who signed up but never hired lawn services. It often sends texts to those prospective customers with a discount if they book services, Clayton said: ‘We hear all the time, I tried y'all out last year, and I totally forgot about you. Then, I got your text message,’ he said.” READ MORE

FINANCE

In his latest column, Ami Kassar talks about how business owners react when confronting new challenges: “This first example is personal. If the government shuts down next week, SBA lending will become chaotic, which could greatly affect my business. In all likelihood, if this happens, it will be a temporary blip. But there’s no guarantee of that, and here’s the real issue: I have a diversification problem: Ninety-five percent of my revenue is derived from one government program. This is an issue that I have been aware of, and I am actively working on offering additional banking products and services. But this effort requires coordination and integration with banks and is taking longer to launch than I had hoped.”

• “Fortunately, I have a line of credit and reserves to handle a potential shutdown and the cash flow issues it will create for me. I cannot emphasize enough how critical a line of credit is.”

• “Deciding how to handle these situations is demanding. It requires understanding the cause of the change and what it might take to resolve it if possible.” READ MORE

HUMAN RESOURCES

When employers pay for employee training and employees leave their jobs: “Drew Lakey quit her job as a physician assistant at the Skin and Cancer Institute in Delano, Calif., in November. She gave four months’ notice. In late August, her former employer sued her, claiming she owed the company more than $138,000. The Skin and Cancer Institute was trying to make her repay $38,000 in training costs and more than $100,000 for ‘loss of business’ caused by the company’s inability to transfer Ms. Lakey’s responsibilities to someone new. Ms. Lakey had signed a training repayment agreement, or T.R.A., when she was hired. The contracts require workers to pay back training costs if they leave their jobs before the end of a certain period. The agreements are frequently presented late in the hiring process as a take-it-or-leave-it provision: No T.R.A., no job.”

• “The arrangements are especially common in the nursing field and the trucking industry; one survey by National Nurses United found that nearly 40 percent of nurses who had joined the profession in the last decade had been subject to the practice.”

• “Ashley Tremain, an employment lawyer in Texas, said she noticed the practice take off about five or six years ago, and she now hears from workers about T.R.A.s a few times a month. ‘They’re just becoming ubiquitous,’ she said, ‘as people are trying to find creative ways to move around non-compete restrictions,’ which are gaining traction at the state and federal levels.”

• “‘When the training is required by the employer, that is the employer’s cost of doing business, and they can’t force the employee to bear that cost or to reimburse that cost,’ [said Dan Pyne, a lawyer with Hopkins & Carley, a law firm in Silicon Valley]. ‘But when the employee is going through the training voluntarily, primarily for their own benefit, in those situations, as a rule, the repayment obligation would be enforceable, and would be legal.’” READ MORE

OPPORTUNITIES

A Kansas startup wants to solve the growing problem of noisy pickleball courts: “It’s now the fastest-growing sport in the U.S., according to the Sports & Fitness Industry Association. Pickleball’s expansion, however, has spurred noise complaints and lawsuits. Locally, Mission Woods then-Mayor Darrell Franklin and his wife, Laurie, filed a lawsuit last year against Mission Hills Country Club to relocate its pickleball courts farther from their home. They alleged in the suit that the noisy courts interfered with their ‘tranquil and peaceful environment.’ The complaints could create big opportunity for Mission startup Sln/cr Panels, pronounced ‘silencer.’”

• “It designed lightweight and customizable sound-absorption panels specifically for pickleball. The panels use best-in-class sustainable fabrics and proprietary nanotechnology that converts sound energy to heat. Its panels absorb the 1.2kHz frequency of pickleball noise and reduce sound intensity by 60 percent, according to its website.”

• “Sln/cr recently teamed up with USA Pickleball for an event near Boston to showcase its solution. USA Pickleball is the sport’s national governing body.” READ MORE

OBITUARY

More than 100 years ago, Alice Anderson ran Australia’s first all-woman garage: “After completing a mechanic’s apprenticeship, Anderson opened and then expanded her Kew Garage in a suburb of Melbourne, moving it from a rental property to land she had secured with a loan. The one-story building — including a workshop, a storeroom and a small bedroom for herself — was a humble utopia, replete with residential space for any worker who needed it. At the opening party for the garage, woman drivers and mechanics in breeches and ties served sandwiches and tea to guests who included the famous opera singer Dame Nellie Melba, the future Australian prime minister Robert Menzies and what was known as the university crowd, a group of women, many of them out lesbians, who worked at the University of Melbourne and regularly patronized Anderson’s businesses.”

• “Anderson trained 29 women she called her ‘garage girls,’ gave driving and car maintenance lessons to area women and offered Melbourne’s first same-day comprehensive service, which she called the ‘once-over.’ The cars were given girls’ names, like Natalie and Phyllis, and the workers went by their surnames. The once-over was done using the ‘get down and get under,’ a wheeled trolley of Anderson’s invention, an apparent precursor to today’s popular creeper.”

• “Anderson’s all-woman garage was the first of its kind in Australia, and one of the first in the world, according to the book ‘A Spanner in the Works: The Extraordinary Story of Alice Anderson and Australia’s First All-Girl Garage’ (2019), by Loretta Smith.”

• “Anderson’s story was distorted and forgotten for decades, but Smith’s biography puts it in order. An LGBTQ advocacy group has taken the name Alice’s Garage, and Anderson’s tie pin, engraved with the same Joan of Arc-inspired motto that was stamped on her business cards — ‘Qui ne risque, rien n’a rien,’ or ‘Nothing ventured, nothing gained’ — is on permanent display at the National Motor Museum in Birdwood, South Australia.” READ MORE

THE 21 HATS PODCAST

I’ve Never Had to Lay Off Anyone Before: This week, in episode 169, Sarah Segal tells Shawn Busse that the other shoe has dropped. A couple of months ago, as she’s shared here previously, Sarah lost two big clients in one week. Now she takes us through her decision to lay off three of her employees, including what it means for the business and what it means for Sarah’s own role in the business. Before the layoffs, she had gotten to the point where she was working on the business—but now that’s changed. “I'm not working on the business,” she says. “I am working for clients. I am getting the job done. I am making sure that we're successful with our clients, and that is my priority right now.”

• “Plus: We also discuss how to choose a CRM, why Sarah and Shawn’s home cities of San Francisco and Portland have been getting such bad PR, and whether former business owners are employable. “I wouldn’t hire me,” says Sarah.

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren