So what does that say – that says we won't build more restaurants. We won't hire more people. —Zane Tankel, chairman and CEO of Apple-Metro
In the minds of many employers, the Affordable Care Act is brought to them by the numbers 29 and 49 — and by the letters N and O.
A shock hit 10,000 part-time workers for the state of Virginia, including large numbers of adjunct college faculty, when the state passed its annual budget this spring. By law, they can now work no more than 29 hours a week.
They are just the tip of the iceberg. The number 29 is on the minds of employers everywhere this spring, from state and local governments to large corporations and mom-and-pop stores.
Some whisper it, others shout it. Few are unaware of it. Twenty-nine is the key threshold that keeps employers free from the new health care mandates. Bump up to 30 hours, and an employee is full time and the employer must help pay for health care.
Small businesses have also been watching the number 49. This is the employee headcount trigger that kicks in health care requirements. Keep headcount below 49 “full-time equivalent employees,” and an employer can avoid health care requirements altogether.
Many businesses attribute the hours pinch (29) and the headcount squeeze (49) to the Affordable Care Act, popularly known as Obamacare.
The squeeze on part-time hours particularly hurts many employees because so many are working part time. In the March jobs report from the Bureau of Labor statistics, involuntary part-time employment stood at 7.6 million, 3 million higher than when the Great Recession began in 2007.
In measuring the new law’s impact on take-home pay, most eyes have been on private businesses, especially franchise owners. With negative publicity keeping heads down in the business world, another indicator is state and local governments — equally sensitive to cost but more insulated from bad publicity.
Late last year, controversy swirled around comments by corporate leaders and major franchise owners, as a number of high-profile business leaders gave early and vocal notice they would be slashing full-time hours in the coming year.
Among these were corporate voices, such as Whole Foods and Darden Restaurants, the latter being the parent company of Olive Garden and Red Lobster. Darden announced in October it was experimenting with a “part-time only” model at restaurants in four markets.
Major franchise owners of brands such as Applebee’s and Wendy’s also spoke out.
In November, Zane Tankel, chairman and CEO of Apple-Metro, which owns some 40 Applebee’s restaurants in the New York area, said he would be cutting hours to avoid health care costs.
“So what does that say – that says we won't build more restaurants. We won't hire more people," he told Fox Business Network at the time.
The result of the outspokenness in some cases was a brand-damaging backlash, leading to tactical retreat. Wendy’s corporate quickly distanced itself from the franchises that moved to cut hours, announcing that corporate-owned stores would not follow suit. By December, Darden announced it was cancelling its plans to shift to a strict part-time model.
“What happens is the 'Huffington Post' picks it up and you essentially have a boycott going on in front of your door,” said Matt Haller, Vice President for Public Affairs at the International Franchise Association, a lobbying group that represents franchise owners. “That’s why the smart brands have been keeping quiet on it.”
With individual brands laying low, Haller said, trade associations like his have been more vocal about the law’s impact, but at the same time they have become increasingly resigned.
“We’ve been a little more pragmatic since the election,” Haller said. “It’s the reality. It’s the law of the land.” He said IFA’s focus is “tweaking the law around the edges” both in Congress and in regulatory rule making.
49ers and 29ers
With the clock ticking on the “look back” year, many small business owners remain confused about what will be demanded of them, said Kevin Kuhlman, manager of legislative affairs for the National Federation of Independent Businesses.
Last week Kuhlman spoke with a homebuilder in Arizona who thought he would fall below the 50 employee threshold because half of his 65 employees were on a spouse’s health plan. That’s not how the rule works, Kuhlman explained.
The majority of NFIB’s members have fewer than 49 employees, Kuhlman said. These employers can avoid the health care requirement by keeping headcount low. Those above that mark, he said, are already looking at cutting part-time hours to hold them to 29 hours per week.
“People are telling us that this is what they are doing,” Kuhlman said. “It’s not what they want to do. But they say this is probably what’s going to happen.”
The downward pressure on both headcount and hours is particularly problematic for franchise owners. Almost all franchise owners aspire to own multiple locations, Haller said, and the business model really doesn’t make sense otherwise. But multiple franchise locations now become an instant trigger for unsustainable health care costs, according to Haller, because the 49-employee rule encompasses all of a company’s holdings.
It’s not just private businesses that are squeezing part-time hours. Cedar Falls, Iowa, with a population of just less than 40,000, is not all that much larger than some small businesses. The city had 59 part-time employees on its books, each previously limited to 32 hours a week. Even before the Affordable Care Act, in other words, Cedar Falls was saving health care costs by limiting full-time employment.
In response to the ACA, however, Cedar Falls has imposed a weekly quota of 29 hours on these employees, mostly clerical, janitorial and maintenance workers.
The alternative was to lay off 25-30 employees, said Cedar Falls Administrative Services Director Richard McAlister.
“We thought that would be inhumane,” McAlister said, noting that the cost of providing health care to all 59 would have been $855,000 a year.
The impact on city services is less dramatic than the impact on the individual worker, McAlister said, because the worker's take-home pay suffers a significant hit with the new restrictions.
McAlister has been in close contact with other Iowa cities and notes that, although Cedar Falls was an early mover, “some of them have quietly initiated the same type of thing.” Some cities are in a quandary, he said, because they had previously provided prorated health benefits to temporary workers. Under the new law, that will not be allowed.
McAlister said Cedar Falls has received a little push back after its decision. “We had a little bit of push back, but I would say 80 to 90 percent was positive. You are doing the right thing. This is a business decision. You are trying to keep people employed.”
McAlister said he also got feedback from the private sector, including a lot of restaurants.
“They told us they were doing the same thing,” he said. “I think it takes some of the heat off of them. They can say even the city is doing this.”
“Frankly, I would have preferred that we not be as high profile as we were,” McAlister said. “You like to be able to do these kind of personal things quietly. But in the end, it was probably good that we got the message out. It does allow people to plan what they do into the future.”
Eric Schulzke writes on national politics for the Deseret News. He can be contacted at email@example.com.