Some low-wage employers are moving toward hiring part-time workers instead of full-time ones to mitigate the health-care overhaul’s requirement that large companies provide health insurance for full-time workers or pay a fee.
Several restaurants, hotels and retailers have started or are preparing to limit schedules of hourly workers to below 30 hours a week. That is the threshold at which large employers in 2014 would have to offer workers a minimum level of insurance or pay a penalty starting at $2,000 for each worker.
The shift is one of the first significant steps by employers to avoid requirements under the health-care law, and whether the trend continues hinges on Tuesday’s election results. Republican presidential nominee Mitt Romney has pledged to overturn the Affordable Care Act, although he would face obstacles doing so.
President Barack Obama is set to push ahead with implementing the 2010 law if he is re-elected.
Pillar Hotels & Resorts this summer began to focus more on hiring part-time workers among its 5,500 employees, after the Supreme Court upheld the health-care overhaul, said Chief Executive Chris Russell. The company has 210 franchise hotels, under the Sheraton, Fairfield Inns, Hampton Inns and Holiday Inns brands.
“The tendency is to say, ‘Let me fill this position with a 40-hour-a-week employee.’ “Mr. Russell said. “I think we have to think differently.”
Pillar offers health insurance to employees who work 32 hours a week or more, but only half take it, and Mr. Russell wants to limit his exposure to rising health-care costs. He said he planned to pursue new segments of the population, such as senior citizens, to find workers willing to accept part-time employment.
He described the shift as a “cultural change” toward hiring more part-timers and not a prohibition against hiring full-timers.
CKE Restaurants Inc., parent of the Carl’s Jr. and Hardee’s burger chains, began two months ago to hire part-time workers to replace full-time employees who left, said Andy Puzder, CEO of the Carpinteria, Calif., company. CKE, which is owned by private-equity firm Apollo Management LP, APO -0.74% offers limited-benefit plans to all restaurant employees, but the federal government won’t allow those policies to be sold starting in 2014 because of low caps on payouts. Mr. Puzder said he has advised Mr. Romney’s campaign on economic issues in an unpaid capacity.
Home retailer Anna’s Linens Inc. is considering cutting hours for some full-time employees to avoid the insurance mandate if the health-care law isn’t repealed, said CEO Alan Gladstone.
Mr. Gladstone said the costs of providing coverage to all 1,100 sales associates who work at least 30 hours a week would be prohibitive, although he was weighing alternative options, such as raising prices.
The Costa Mesa, Calif., company currently offers benefits to workers who put in at least 32 hours a week.
Supporters of the health-care overhaul said most large employers already covered workers voluntarily, and requiring others to do so or pay a penalty was important to level the playing field between businesses.
A spokeswoman for the Department of Health and Human Services said the administration didn’t believe the law would substantially affect employment, citing the Massachusetts health-care overhaul signed by then-Gov. Romney in 2006.
“Consistent with the experience in Massachusetts and projections of the Congressional Budget Office, the health-care law will improve the affordability of health care while not significantly impacting the labor market,” spokeswoman Erin Shields Britt said in a written statement. “This law will decrease costs, strengthen our businesses and make it easier for employers to provide coverage to their workers.” Administration officials declined to answer further questions.
Companies in industries that already offer full benefits have indicated that they weren’t planning major changes around the law. Several employers with hourly workforces, including Marriott International Inc. MAR -0.14% hotels, the Costco Wholesale Corp. COST +1.67% warehouse chain and the Panera Bread Co. PNRA +0.56% restaurant chain also said they had no plans to change employee hours in response to the law.
But benefits consultants said most retail and hotel clients have explored shifting toward part-time workers.
Those industries are less likely to offer health coverage now, and if they do, the plans typically are too skimpy to meet the minimum-coverage requirements.
“They’ve all considered it,” Matthew Stevenson, a workforce-strategy principal at Mercer. In a July survey, 32% of retail and hospitality company respondents told the consulting firm that they were likely to reduce the number of employees working 30 hours a week or more.
Consultants have warned that companies that use more part-time labor risk productivity losses from high staff turnover and lower morale. Laurence Geller, who until last week was CEO of Strategic Hotels & Resorts Inc., BEE +13.29% said he weighed moving toward part-time workers but decided against risking that highly trained staff at his high-end hotels would go elsewhere. The company owns hotels bearing the Four Seasons, Fairmont and Ritz-Carlton names.
The insurance mandate applies to companies with the equivalent of 50 or more full-time workers, a calculation based on the number of people employed by the company and an average of hours they work in a week. Companies are adjusting schedules now because they will have to review employment rolls for up to a year in advance to determine which workers will be deemed full-time under the law.
A company will have to pay a penalty of $2,000 for every such worker, after the first 30, if it doesn’t offer qualifying health coverage. If a company offers health insurance but the coverage is deemed sparse or unaffordable, the company must pay $3,000 for every worker who gets a federal tax subsidy to purchase coverage as an individual.
Darden Restaurants Inc. DRI +0.72% was among the first companies to say it was changing hiring in response to the health-care law. The Orlando, Fla., parent of Red Lobster and Olive Garden in February began testing hiring part-time workers in four markets to replace some full-time employees who had left, a spokesman said.
Ken Adams said his 10 Subway restaurant franchises in Michigan have about 60 employees who work 30 hours or more in a given week. Before year-end he plans to cut their hours to below 30 and, in some cases, to reduce positions altogether, he said. A Subway corporate spokesman said it was up to individual franchisees to make such decisions.
*Modified from a WSJ article by Julie Jargon, Louise Radnofsky, and Alexandra Berzon