Employers that have pruned the hours of part-timers in response to Obamacare have generated plenty of headlines, mostly negative. But it’s not the only strategy they’re testing in hopes of sparing themselves the expense of buying health insurance for everyone.
Around the country, companies are beginning to share employees.
They’re also increasingly turning to temporary staffing agencies.
When and where possible, they’re using independent contractors.
And, in some instances, they’re turning to professional employer organizations.
Often, none of these options are ideal but are viewed as the best way forward, especially for businesses subject to the law because they employ 50 or more people.
Concerns have been running high about how PPACA will impact business. A recent Gallup survey found that 48 percent of small-business owners say the law is going to be bad for business, compared with 9 percent who say it’s going to be good, and 39 percent who expect no impact at all.
The headline-grabbing response from business has, in part, included trimming of the part-time workforce. The law requires large employers offering health insurance to include part-time employees working 30 hours a week or more. The Federal Reserve Bank of Minneapolis found that 11 percent of employers are shifting to more part-time employees or planning to do so in response to the new healthcare requirements.
But HR managers, small-business interest organizations and others say many companies also are doing what they can to preserve jobs.
It isn’t altruism alone; these business owners also are motived by a desire to keep their companies growing, if not thriving.
Kevin Kuhlman, the Washington, D.C.-based manager of legislative affairs for the National Federation of Independent Businesses, said few of his organization’s members like the idea of “shrinking their businesses.”
That’s why, he said, “we’re seeing a lot of creative strategies” when it comes to addressing the employer mandates of the Patient Protection and Affordable Care Act (PPACA).
“Folks are concerned about the sustainability of their business,” Kuhlman said. “Some might try to survive by atrophy, which isn’t a great approach, or try to find ways to be more productive with fewer employees.”
But rather than “resisting growth” or overwork employees, many companies are trying out new ways of getting the job done.
Sharing, for example.
Some businesses, especially those in the food-service world, are increasingly banding together to split an employee’s workweek between themselves and competitors. In other words, a cook might work 15 hours at one restaurant, put in another 15 at another eatery and wrap up with 10 hours at a third.
Labor interests might object that this approach amounts to exploitation, but advocates say it helps keep people fully employed, if not insured by an employer.
Employers also are turning to temporary staffing agencies as a possible solution.
Many temporary staffing firms are going to be considered large employers under Obamacare, meaning they’ll be compelled to provide health benefits or pay the penalties. But employers who turn to staffing agencies can save money because the cost of the benefits will be lower for a large employer.
How well this strategy will work is unclear. “The issue, of course, is what will the temp agency charge?” asked Dwight D. Menke, the owner of an eponymous brokerage in Topeka, Kansas.
The same goes for professional employer organizations, or PEOs.
ESCO Communications, an Indianapolis-based audio/visual equipment installer, turned to a PEO, WorkSmart Systems, after it faced a 40 percent hike in the company’s health plan last year.
“Health insurance was the real driver” for making the switch, CEO Chip Roth told Entrepreneur magazine. “By joining a larger pool and spreading the risk around, we were able to keep our rates the same as they were.”
PEOs also handle an array of administrative HR tasks, so it’s no wonder Matt Thomas, founder and president of WorkSmart, says his company is seeing solid growth. “A lot of that has to do with the Affordable Care Act,” he said. “Even larger companies that wouldn’t normally look at PEOs are looking now, so they can avoid some of the ramifications of (the law).”
The biggest loser when a company goes the PEO route? The in-house HR staff.
Meanwhile, employers also are turning increasingly to independent contractors to get work done.
Companies that use these “freelancers” generally don’t have to withhold or pay any taxes on payments they make to them and are not required to provide them with health insurance. The IRS, however, has been cracking down on the abuse by companies of the independent contractor classification and many employers have been fined.
Still, it’s a risk more employers are reportedly taking so long as they feel comfortable they can prove that the contractor’s services are not an integral part of their principal business.
Compliance, as the NFIB’s Kuhlman points out, is a big concern for most employers, and whether some of these strategies are ultimately seen as legitimate by the government remains to be seen.
In the end, many employers may decide they don’t like giving up the control they have over employees who suddenly are working for a temp agency, or a PEO or have become independent contractors.
Kuhlman expressed concerns that “some folks are throwing good money at bad advice.”
“They’re sick of waiting so they’re doing things like splitting up their businesses” into smaller units with fewer employees, he said. “But that’s not going to work, because they (the regulators) are aggregating business owners with multiple entities into one entity.”
In other words, those companies will still be subject to the law.
John Duczak, senior VP at The American Worker, a Hoffman Estates, Ill., benefits company, points out the law itself might offer relief to at least some employers, even those with thousands of workers on their payroll.
The legislation’s “variable hour accommodation” allows employers to determine whether someone is a fulltime or part-time employee by the average number of hours that person puts in over a 12-month period. “Some companies are going to become very skilled in their management of that position” as a way of avoiding Obamacare’s coverage mandate, he said.
Turnover in the ranks also will help a lot of companies, especially those in the retail and hospitality industries.
Duczak noted that one of his clients hires 18,000 people a year, 11,000 of whom have moved onto new jobs or situations after six months.
The problem, he said, “takes care of itself,” at least for those employers.