Health Care Law Could Push Workers into Part-Time Jobs

Nov 5, 2012

The October job numbers showed that the recovery remains weak, and the unemployment rate remains stubbornly high. According to a JPMorgan economist, if we create 175,000 jobs per month, slightly more than the 171,000 created in October, it'll take 15 years to recover.  That economist also points out that 8.3 million people are working in part-time jobs even though they'd prefer full-time work. Unfortunately, because of President Obama’s health care law, the Patient Protection and Affordable Care Act (PPACA), workers in the hotel, restaurant, and retail industries could be pushed into part-time jobs working less than 30 hours per week.  The Wall Street Journal story reports:

Pillar Hotels & Resorts this summer began to focus more on hiring part-time workers among its 5,500 employees, after the Supreme Court upheld the health-care overhaul, said Chief Executive Chris Russell. The company has 210 franchise hotels, under the Sheraton, Fairfield Inns, Hampton Inns and Holiday Inns brands.

CKE Restaurants Inc., parent of the Carl's Jr. and Hardee's burger chains, began two months ago to hire part-time workers to replace full-time employees who left, said Andy Puzder, CEO of the Carpinteria, Calif., company. CKE, which is owned by private-equity firm Apollo Management LP, offers limited-benefit plans to all restaurant employees, but the federal government won't allow those policies to be sold starting in 2014 because of low caps on payouts.

Home retailer Anna's Linens Inc. is considering cutting hours for some full-time employees to avoid the insurance mandate if the health-care law isn't repealed, said CEO Alan Gladstone.

Mr. Gladstone said the costs of providing coverage to all 1,100 sales associates who work at least 30 hours a week would be prohibitive, although he was weighing alternative options, such as raising prices.

Why would companies consider shifting to part-time workers? Under the health care law, if an company has more than 50 “full time equivalent” workers, a combination of full and part-time employees, but doesn’t offer “affordable” coverage that meets the government’s minimum value standard, the company will have to pay a penalty. This penalty is determined by the number of full-time employees minus 30 full-time employees. So to reiterate a very important point: part-time workers are not part of the penalty formula. The health care law creates a perverse incentive to hire part-time versus full-time workers.

Smaller companies in other industries are in the same situation, and over the last few years, many business owners have warned the public that they’re making similar calculations.

This summer, Mary Miller, CEO of JANCOA Janitorial Services, Inc., in Cincinnati, OH told a House committee [emphasis mine]:

One of the few options that I am now forced to consider is reducing the majority of my team members to part-time employment in order to reduce the amount that I will be penalized. This, in effect, will put an end to our very successful Dream Manager program. Regrettably, for me and my employees, the new health care law is a dream killer.

In 2011 before another House committee, Brian Vaughn, a Georgia Burger King franchisee said:

Prior to the law’s enactment, my goal had always been to hire fewer people for more hours. Now, because of what Washington has mandated, it seems to make more practical business sense for me to hire more people for fewer hours.”

Scott Womack, owner and president of a 12-unit IHOP franchise in Indiana and Ohio told the House Ways and Means Committee in 2011 that his choices are to pay the $2,000 per employee penalty under the PPACA or reduce employees’ hours and shift full-time workers into part-time status.

On a press call in 2011, Brett Parker, vice chairman and CFO of Bowlmor Lanes said the health care law backed his company into a corner:

[T]o minimize losses sustained due to this mandate, we will have to keep employees part-time, not allow them to work 30 hours a week. We will be forced to do this as much as possible in order to reduce the number of full time workers.

Not every company will suddenly shift to having all part-time employees. Each company has to weigh the costs of increased training and higher turnover that comes with more part-time workers against the costs of fines. As I wrote in June:

However, with this sort of perverse financial incentive, companies in many industries–-particularly those with low-skilled, low wage employees – will “do the math” and hire part-time workers over full-time workers. While this may keep human resource departments busy, it will cause many businesses to miss out on some economies of scale, as they devote more time and effort to hiring and training part-time workers. Think about managing 100 part-time workers each working 20 hours weekly, versus 50 full-time workers each working 40 hours weekly. And this certainly won’t be good for those people who want to work full-time but can’t because of this perverse incentive.

The last thing we want to do is discourage businesses from hiring full-time workers. But as things stand, the health care law would do just that, generating frustration for many in an already tough job environment. The answer is to enact real reforms by repealing the employer mandate (along with other provisions that discourage job growth) and work toward reducing health care costs, expanding coverage for the uninsured, and improving health care quality.

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