ObamaCare and the '29ers'
WASHINGTON, D.C. | February 25, 2013 - Wall Street Journal
Here's a trend you'll be reading more about:
part-time "job sharing," not only within firms but across different
businesses.
It's already happening across the country at
fast-food restaurants, as employers try to avoid being punished by
the Affordable Care Act. In some cases we've heard about, a local
McDonalds has hired employees to operate the cash register or flip
burgers for 20 hours a week and then the workers head to the nearby
Burger King or Wendy's to log another 20 hours. Other employees take
the opposite shifts.
Welcome to the strange new world of
small-business hiring under ObamaCare. The law requires firms with
50 or more "full-time equivalent workers" to offer health plans to
employees who work more than 30 hours a week. (The law says
"equivalent" because two 15 hour a week workers equal one full-time
worker.) Employers that pass the 50-employee threshold and don't
offer insurance face a $2,000 penalty for each uncovered worker
beyond 30 employees. So by hiring the 50th worker, the firm pays a
penalty on the previous 20 as well.
These employment cliffs
are especially perverse economic incentives. Thousands of employers
will face a $40,000 penalty if they dare expand and hire a 50th
worker. The law is effectively a $2,000 tax on each additional hire
after that, so to move to 60 workers costs $60,000.
A 2011
Hudson Institute study estimates that this insurance mandate will
cost the franchise industry $6.4 billion and put 3.2 million jobs
"at risk." The insurance mandate is so onerous for small firms that
Stephen Caldeira, president of the International Franchise
Association, predicts that "Many stores will have to cut worker
hours out of necessity. It could be the difference between staying
in business or going out of business." The franchise association
says the average fast-food restaurant has profits of only about
$50,000 to $100,000 and a margin of about 3.5%.
Because other
federal employment regulations also kick in when a firm crosses the
50 worker threshold, employers are starting to cap payrolls at 49
full-time workers. These firms have come to be known as "49ers."
Businesses that hire young and lower-skilled workers are also
starting to put a ceiling on the work week of below 30 hours. These
firms are the new "29ers." Part-time workers don't have to be
offered insurance under ObamaCare.
The mandate to offer
health insurance doesn't take effect until 2014, but the
"measurement period" used by the feds to determine a firm's average
number of full-time employees started last month. So the cutbacks
and employment dodges are underway.
The savings from
restricting hours worked can be enormous. If a company with 50
employees hires a new worker for $12 an hour for 29 hours a week,
there is no health insurance requirement. But suppose that worker
moves to 30 hours a week. This triggers the $2,000 federal penalty.
So to get 50 more hours of work a year from that employee, the extra
cost to the employer rises to about $52 an hour—the $12 salary and
the ObamaCare tax of what works out to be $40 an hour.
Moving
to 33 hours a week costs the employer about $10 an hour more in
ObamaCare tax. Look for fewer 30-35 hour-a-week jobs. The law that
was sold as a way to help business and workers is thus yanking a few
more rungs from the ladder of economic upward mobility.
Many
franchisees of Burger King, McDonalds, Red Lobster, KFC, Dunkin'
Donuts and Taco Bell have started to cut back on full-time
employment, though many are terrified to talk on the record.
Activist groups have organized boycotts against Darden Restaurants,
which owns Olive Garden and Red Lobster, for daring to publicly
criticize ObamaCare. It's safer to quietly dodge the new costs and
avoid becoming a political target.
But the damage won't be
limited to franchisees or restaurants. A 2012 survey of employers by
the Mercer consulting firm found that 67% of retail and wholesale
firms that don't offer insurance coverage today "are more inclined
to change their workforce strategy so that fewer employees meet that
[30 hour a week] threshold." This week Nigel Travis, the CEO of
Dunkin' Donuts, asked Congress to change the health law's definition
of full-time to 40 hours a week from 30 hours so worker hours won't
have to be cut.
The timing of all this couldn't be worse.
Involuntary part-time U.S. employment is already near a record high.
The latest Department of Labor employment survey counts roughly
eight million Americans who want a full-time job but are stuck in a
part-time holding pattern. That number is down only 520,000 since
January 2010 and it is 309,000 higher than last March. (See the
nearby chart.) And now comes ObamaCare to increase the incentive for
employers to hire only part-time workers.
Democrats who
thought they were doing workers a favor by mandating health coverage
can't seem to understand that it doesn't help workers to give them
health care if they can't get a full-time job that pays the rest of
their bills.
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