Employers cut staff hours to avoid health care law penalties

Amanda Crumm

As Americans nationwide anticipate the effects of the new health care legislation, some are already adjusting to life after the Affordable Care Act.

Beginning Jan. 1, all Americans will be legally required to have health insurance or pay penalties. Employers face a similar mandate, which has been extended to 2015.

Under the new health care legislation, an employer mandate requires that all businesses with at least 50 full-time workers — defined as those who work an average of 30 hours per week — must offer all full-time employees insurance coverage, meeting minimum coverage standards, or pay a penalty known as the Employer Shared Responsibility Payment, according to HealthCare.gov. The amount of the fee varies depending on the number of employees.

Nick Timko, a 22-year-old junior communications studies major at Kent State, spent last year living at home taking online classes. This year, he planned to move to Kent, get a full-time job and still have a little money left.

Timko began working at Wendy’s on East Main Street in late July. He applied during the summer, hoping to maintain 40 hours per week to generate enough money to pay his $350-per-month rent payment.

He said upon applying to Wendy’s, he was informed that working 40 hours per week was a goal he could obtain. However, shortly after he began his new job, he was told Wendy’s was not permitting employees to exceed 28 hours per week.

Wendy’s shift manager Andrew Jones admitted that the cap on employee hours is a direct result of the new health care reforms instituted by the Affordable Care Act, which was signed into law by President Barack Obama on March 23, 2010.

“They just told us that they were doing it because they weren’t going to offer the crew health care,” Jones said. “And the only way you can have your crew work over 28 hours a week is if you offer them health care.”

However, Akwen, Ltd. President Bruce G. Obenour wrote in an email that Wendy’s has not made wholesale changes in its hours or labor model. Akwen, Ltd. is a franchise owner of 19 Wendy’s restaurants in northeast Ohio, including the East Main Street location.

Even though businesses will not be penalized until after the 2015 deadline, Wendy’s and many other businesses have already begun taking drastic measures to minimize their health care contribution costs.

Fifty percent of small businesses affected by the employer mandate admit they will decrease employee hours to reduce full-time employees or replace full-time employees with part-time workers to avoid paying penalties, according to the U.S. Chamber of Commerce.

“You are seeing an impact right now where you’re not having a lot of growth because there is speculation as to what could go on because of this new plan,” said Richard Rebadow, executive vice president of economic development for the Greater Akron Chamber. “It’s hurting our economy because businesses are delaying investment plans.”

Employer mandate requirements

  • To avoid paying penalties, employers must offer insurance plans that meet specific requirements. All employer-based plans must be affordable. Affordability is defined as the annual premium for single coverage being no more than 9.5 percent of an employee’s household income, according to HealthCare.gov.

All plans must provide minimum acceptable coverage. This is defined as covering at least 60 percent of the total costs of covered services.

Employers who fail to provide such insurance plans for their employees by the 2015 deadline will be charged one of two potential penalties:

If employers choose not to offer insurance packages to their employees, a $2,000 penalty for each full-time employee will be charged annually. The first 30 employees are exempt from the fee.

If employers do choose to offer an insurance plan but it does not meet the new health care requirements a $3,000 annual penalty will be charged to employers for each employee with no exemptions.

Rebadow said many of the businesses his organization works with have admitted they plan to accept the penalties instead of providing health insurance for their employees because of the financial savings.

“From a policy standpoint, does that actually achieve what the president wants to achieve?” Rebadow asked. “No! In fact, it makes it worse.”

For Timko and the many other employees affected by these changes, a small decrease in work hours might mean a big difference in income.

“It’s affected me to the point that it’s hard to even live out here,” he said. “I’m getting by, but I have to penny pinch. I have to live really frugal.”

Timko said he and the other part-time employees at Wendy’s received a letter from Wendy’s about purchasing their own health insurance, but because his parents are both nurses and he is covered on the family insurance plan, he didn’t pay much attention to the letter. But he did express his concern for people going forward who do not currently have sufficient health insurance because of the financial burdens placed upon them.

“It could really ruin someone’s life,” he said. ”It just makes life so much harder, and it’s already hard enough for the majority of people, and there’s nothing really that we can do ultimately.”

Jones said that of the 30 part-time employees at the Wendy’s branch, approximately half of them were forced to obtain a second job to meet their financial needs. Timko said he is expecting to begin looking for a second job soon, adding that he wouldn’t have applied to Wendy’s if he had known the end result.

Effects on businesses

While these changes seem to be affecting small businesses the most, Rebadow said, even large corporations are turning the cost of health care over to their employees.

Lew Shiley, managing partner for Infinity Resources Inc., a staffing firm in Conneaut, Ohio, admitted that a few of his clients, who do not have 50 employees, are using the staffing agency’s part-time employees rather than hiring their own workers. This enables the companies to increase staffing levels as necessary, bypassing the 50-employee minimum.

Health plan categories

The plans in the marketplace are

separated into four categories.






Coverage of cost





Source: HealthCare.gov

Many obstacles stand in the way of the new law being successful.

Open enrollment began Oct. 1 for the online health care exchange, which allows individuals without insurance coverage to create an account on the HealthCare.gov website and shop for plans, which vary by state. However, with a continuously crashing website, few have been able to complete the process.

Congress’s inability to agree on the legislation contributed to the first federal government shutdown in 17 years. A temporary compromise deferred the disagreement until Jan. 15, but the inability of Congress to reach a long-term solution could create an uncertain future for the health care legislation.

“It’s having a very significant impact on businesses in general,” Rebadow said. “The biggest part of the problem is the uncertainty. What the plan is going to look like and the way that that has a significant impact not only on the businesses but on our economic environment as well because there are probably a lot of things businesses could be doing that they are putting on hold until they see how this plan pans out and affects their business.”

With all the uncertainty of the direct effects on businesses, Rebadow said he worries particularly about the effects on small businesses.

“How can you plan and do your business projection with uncertainty?” Rebadow asked. “This is rather significant because it’s a big cost to the employer and the small-business people. Small business owners are the backbone of this country and to put a burden on them, where they can’t really identify what that impact is going to be, is a hardship. Whether well-intended or not by the president, it is placing a hardship on those businesses and those business owners.”

Shiley said many of his customers are concerned about whether or not they can afford the new health care plan requirements.

“Most of the hiring comes from small companies, and if they have to worry about paying out hundreds of dollars to health insurance, it’s just not there to give,” Shiley said.

As the nation struggles to decipher the confusion of the Affordable Care Act, Shiley said he is anticipating a resolution.

“I just hope that they resolve this so that we can get our economy moving again because a good strong economy is good for our industry and good for this country,” Shiley said.

Contact Amanda Crumm at [email protected].