Employee Benefit Views

Examining the pros and cons of part-timers under the lens of health care reform

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Posted November 14, 2012 by By Linda K. Riddell at 01:18PM. Comments (5)

 

Will health care reform push more employers toward part-time workers?  A recent Wall Street Journal story thinks so, citing several restaurants, hotels and retailers that have started to fill full-time positions with part-timers.  
Part-timers do have some alluring features — no expense for certain benefits like life or disability insurance, and flexibility on hours. And now, the Patient Protection and Affordable Care Act offers yet another reason to hire part-time staff — they don’t “count” for determining whether an employer has 50 full-time employees. At 50 employees, employers are required to offer a health plan. At 49, they don’t.  
For employers hovering near 50 full-time employees, bumping a few people down to 29 hours per week is the difference between having to offer health benefits or not.  Any employer who can cross the line to fewer than 50 will be tempted to use this strategy.  
The downside to this approach, though, is that a business will not be able to grow — except by hiring more part-timers. At a certain point, the training and frictional costs will not be worth the headache. Having two part-time employees instead of one full-time one puts more stress on managers, human resource staff, scheduling and performance reviews.  
If “under-50” employers decide to drop health coverage, they may find filling positions difficult. Obviously, given a choice, employees will be more attracted to a company that offers a health plan. A company with no health plan will only be able to keep top employees until those workers find a job with health benefits, which only cranks up the turnover and training costs.  
For employers with well more than 50 employees, PPACA’s “incentive” toward part-time labor likely will not sway them. Only 3% of employers with 200 or more employees do not offer a health plan, according to the 2012 Employee-Sponsored Health Benefits Survey. Employers of this size still can benefit from pushing employees from 32 hours/week to 29 hours to avoid paying for health benefits. However, this incentive already exists, as health care reform does not change the fact that most companies do not pay for health benefits for part-timers.  
There will be some gaming of the system at the boundaries between under-50 and over-50 employers, no doubt. Some employees working 32 hours a week may find their hours cut, and their health benefits withdrawn.  This won’t be due to health reform; the employer always had this motive.  
Linda K. Riddell is a principal at Health Economy, LLC. She can be contacted at LRiddell@HealthEconomy.net.

 

Will health care reform push more employers toward part-time workers?  A recent Wall Street Journal story thinks so, citing several restaurants, hotels and retailers that have started to fill full-time positions with part-timers.  

Part-timers do have some alluring features — no expense for certain benefits like life or disability insurance, and flexibility on hours. And now, the Patient Protection and Affordable Care Act offers yet another reason to hire part-time staff — they don’t “count” for determining whether an employer has 50 full-time employees. At 50 employees, employers are required to offer a health plan. At 49, they don’t.  

For employers hovering near 50 full-time employees, bumping a few people down to 29 hours per week is the difference between having to offer health benefits or not.  Any employer who can cross the line to fewer than 50 will be tempted to use this strategy.  

The downside to this approach, though, is that a business will not be able to grow — except by hiring more part-timers. At a certain point, the training and frictional costs will not be worth the headache. Having two part-time employees instead of one full-time one puts more stress on managers, human resource staff, scheduling and performance reviews.  

If “under-50” employers decide to drop health coverage, they may find filling positions difficult. Obviously, given a choice, employees will be more attracted to a company that offers a health plan. A company with no health plan will only be able to keep top employees until those workers find a job with health benefits, which only cranks up the turnover and training costs.  

For employers with well more than 50 employees, PPACA’s “incentive” toward part-time labor likely will not sway them. Only 3% of employers with 200 or more employees do not offer a health plan, according to the 2012 Employee-Sponsored Health Benefits Survey. Employers of this size still can benefit from pushing employees from 32 hours/week to 29 hours to avoid paying for health benefits. However, this incentive already exists, as health care reform does not change the fact that most companies do not pay for health benefits for part-timers.  

There will be some gaming of the system at the boundaries between under-50 and over-50 employers, no doubt. Some employees working 32 hours a week may find their hours cut, and their health benefits withdrawn.  This won’t be due to health reform; the employer always had this motive.  

Linda K. Riddell is a principal at Health Economy, LLC. She can be contacted at LRiddell@HealthEconomy.net.

 

 

5 Comments

Posted by: Patrick P | November 21, 2012 11:20 PM

There are already many employers - generally unfamiliar with the concept of "controlled group" applied for purposes of testing to other benefits such as FSA programs and retirement (pension) plans - who are contracting out or trying to create subsidiaries to get under the 50 FTE threshold. That will not likely pass muster under the "controlled group" testing concept. Basically for other nondiscrimination testing, the federal regulations require the accumulation of all entities under the same "control" or ownership. Employers should assume the same concept will apply under PPACA.

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Posted by: Linda R | November 19, 2012 2:24 PM

My apologies for being unclear about the "counting". The employer does not have to pay a penalty for not offering a part-time employee a health plan. That is what I meant by not counting toward the penalty. Thank you for your great comments!

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Posted by: Mel B | November 19, 2012 12:02 PM

Either way - full-time or FTE - an employer can hover on the edge and adjust accordingly. When faced with profitability and profit margins, any responsible employer will do the math and make the necessary adjustments to keep the company afloat. An employer wholly dedicated to it's employees can only do so much before being forced to either cut costs or close the business. Is it any surprise that the lawmakers don't get this? Just look at the government budgets for an answer to that question.

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Posted by: Frank R | November 15, 2012 2:39 PM

In your article the statement that part-time employees "don't "count" for determining whether an employer has 50 full-time employees" is incorrect. When it comes to determine which employers are responsible for the "Employer Shared Responsibility" penalties the calculation to determine the 50 FTE (full time equivalents) is based on the prior calendar year total number of full-time & part-time employees. The calculation is as follows; 1)Full-time = each employees working 30 or more hours per week and are counted as a 1 . 2)All Part-time employees (working 29 hours or less per week)all their monthly hours are totaled and then divided by 130 which would equal (full time equivalents) 3)the totals of 1+2 would be added to determine total "full time equivalents" employees which would then determine if the business is a "applicable large employer" if the total equal or exceeds 50.

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Posted by: N R | November 15, 2012 2:36 PM

Linda,Can you please provide some clarification on the following:Your article states that part-time employees "don't "count" for determining whether an employer has 50 full-time employees. At 50 employees, employers are required to offer a health plan. At 49, they don't." IRS Code Section 4980H(c)(2)(A) states that for purposes of determining whether an employer is an applicable large employer, an employer must include not only its full-time employees but also a full-time equivalent for employees who work part-time. To do so, the employer must add up all the hours of service in a month for employees who are not full-time and divide that aggregate number by 120. The result of that calculation is then added to the number of full-time employees during that month. Then, if the average number of employees for the year is 50 or more, the employer is an applicable large employer.Wouldn't an employer first have to evaluate the workforce to determine if the company is considered an applicable large employer, then any subsequent penalties would be assessed on full-time employees working 30 hours per week?Thank you.

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