econscius

Colleges and Private Sector Employers Cut Worker Hours, Avoid New Hires to Avoid ObamaCare Fines

In Obama Administration, ObamaCare, Unemployment on January 20, 2013 at 1:48 am
Eddie Bauer store closing, Rockford, IL.  Jan. 20, 2013.  Photo by author.

Eddie Bauer store closing, Rockford, IL. Jan. 20, 2013. Photo by author.

Colleges and private employers are cutting hours to stay under 30 hour per week threshold for paying $2,000 “ObamaCare” annual fines.  Others are using independent contractors rather than hire full-time workers to avoid the 50-employee threshold mandating insurance coverage or fines.

It is fascinating to watch how it plays out.  Any massive law such as “ObamaCare” will have unexpected impacts, many negative.  Middle of the night sessions that create laws cannot possibly anticipate – or control – how everyone will react.  We read how colleges are cutting adjunct hours to keep them under 30 hours, since adjuncts generally are not offered healthcare.  [1] There will be additional effects.  The WSJ article quotes Dan King, executive director of the American Association of University Administrators, saying colleges fear ObamaCare will increase unionization efforts of adjuncts.  Why?  The reason being they will end up with fewer hours, pressuring adjuncts, who earn only a fraction of what full professors earn.

Private sector employers, “particularly restaurant operators, have been moving to cut hours to reduce the number of workers to whom they would be required to offer health insurance.” [1]

A Wall Street Journal article [2] goes into detail about one company that is actually expanding, but doesn’t want to crack the 50 full-time employee ObamaCare threshold.  As a result, the owner will hire independent contractors, who, of course, receive no benefits at all.

During her two-plus years in business, Elizabeth Turley has steadily recruited new employees for her apparel company, Meesh & Mia Corp., to keep pace with its rapid growth. But this year could be different. Instead of increasing her staff, she plans to hire independent contractors for tasks that can be outsourced, such as marketing and product development.

Her reason? Meesh & Mia is on the cusp of having 50 full-time employees. If the company hits that threshold, it will have to provide health coverage that meets government standards or potentially pay a penalty.

Elizabeth Turley, CEO of Meesh & Mia, plans to hire independent contractors this year because of health-insurance changes. Ms. Turley looked at fabric options at a trade show Tuesday.

“We are poised this year to more than double or even triple business,” says the 58-year-old Ms. Turley, whose Idaho-based company makes “spiritwear,” or clothes with licensed college and football-team colors and logos. “And then this happened…. We have to find another way to get there.”

Even though the rule doesn’t go into effect until early 2014, a business could be subject to the so-called employer mandate if, during 2013, it averages 50 or more full-time equivalent employees, according to recently released regulations from the Treasury Department and the Internal Revenue Service.

Employers have the choice to calculate their head counts by averaging the full 12 months of 2013 or a consecutive six-month period during the year.
Many small-business owners haven’t yet realized that the way they structure their firm in 2013 could determine their status under the law in a year’s time.

The government issued the little-noticed regulatory guidance on Dec. 28. Ms. Turley says she wasn’t aware of the rules until a Journal reporter informed her.

….Typically, independent contractors are less expensive for employers, who don’t have to pay taxes on wages or supply benefits, as they would for their employees. Reliance on independent contractors has increased over the years, particularly in the recession, when employers sought less expensive labor.

How far does the hour-cutting and non-hiring go?  No one can tell.  Reduced hours may mean crimped service.  I suspect one impact of the law will be more low-income workers working two part-time jobs of approximately 25 hours each, as employers do everything possible to avoid cracking 29 hours per part-time employee.  Others will work as independent contractors rather than obtain full-time employment.  Either would be examples of unintended consequences of the law.  The article about contractors points out the IRS rules are complex, leading to more disputes and audits.

If anything, [audits] will increase more” in light of the health-care law, says Monique Warren, partner at workplace law firm Jackson Lewis LLP in White Plains, N.Y. “Employers have to be real careful about calling someone an independent contractor.”

Government auditors would determine whether a worker misclassification triggers the health-care law’s employer mandate. That means the stakes are higher for employers, particularly those who have close to 50 full-time employees. They could have to pay back taxes in addition to potential penalties associated with the health-care law, should the revised classification push their employee headcount over the threshold.

“Some businesses may be tempted to classify someone as an independent contractor to avoid the headcount that could subject them to the [employer mandate],” says Edward Lenz, senior counsel at the American Staffing Association, an Alexandria, Va., lobbying group for temporary and contract staffing firms. “If anything, the risks of misclassifications are exacerbated by the [health-care law].”

Adding to the confusion for small firms is that an employer’s view of who is an independent contractor may not align with the government’s. The guidelines defining independent contractors “aren’t black and white,” says Ms. Warren. “To some extent, it is deliberately vague. The IRS can’t… account for every different situation.”

Simply juggling schedules if you’re a part-time worker working 20-25 hours per week at two different employers is a challenge.  In today’s economy, finding one, nevermind two, jobs is tough enough.  More than a few workers will find their hours cut from ObamaCare, reducing their total earnings. 

 

[1] http://online.wsj.com/article/SB10001424127887323635504578213502177768898.html?KEYWORDS=health+law+colleges

[2] http://online.wsj.com/article/SB10001424127887324595704578241510527580352.html?KEYWORDS=cutting+hours+employers+health+law

Store closing picture by author.  IRS Building from Wikipedia Commons.

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