Tuesday, August 6, 2013

New Obamacare Regulation Screws Part-Time Employers

The Small Business Administration, the IRS, and HHS are changing the rules regarding healthcare and part-time employees.

The original wording in the PPACA put the "employer mandate" onto employers with more than 50 full-time employees. Full-time was defines as averaging 30 or more hours a week.

Several businesses began translating their full-time slots to part-time positions. They started reducing the hours of two full-time positions to less than 30 hours a week. They would then hire one additional part-time employee to fill that production gap. The tactic helped bring the U3 unemployment number down over the past few months to its current 7.4%. However, the U6 rate increased. The Labor Force also shrunk as many found they could better survive on government subsidies than on part-time wages.

The Obama Administration apparently sought to close this perceived loophole in the law. Without legislation, they have implemented a policy called "full-time equivalence".

According to the US Small Business Administration, a bureaucracy under the executive branch, businesses must do a little more math when it comes to calculating its "full-time" employees. They will have to do this in order to determine if they must provide employee healthcare benefits or pay additional taxes, labeled as "administrative fines".

Look at slide number 20 in this presentation on the "new regulations".

Employer Shared Responsibility Provisions: Key Definitions


Full-Time Employee: an employee who is employed on average 30 hours or more per week (or at least 130 hours of service in a given month).

Full-Time Equivalent (FTE) Employee: a combination of employees, each of whom individually is not a full-time employee because they are not employed at least 30 hours per week, but who, in combination, are counted as the equivalent of a full-time employee. – For example, two employees each of whom works 15 hours/week are added together to equal one full-time employee.

Controlled Group Employers: employers with common owners or who are otherwise related are aggregated together to determine whether they meet the threshold number of 50 or more FTE employees.

Say a local restaurant owner has three or four outlets. Let's say they employ 25 part-time and 3 full time employees at each location. That is a total of 112 employees. However, under the original law, 100 of them are part-time and don't fall under the PPACA's employer mandate rules for companies with 50+ full-time employees.

Under the new rule, the restaurant owner will have to start adding the employees together. Say each one of those 100 part-timers works an average of 20 hours a week. That becomes 2,000 man-hours. You then have to divide that by the 30-hour PPACA "full-time" threshold. That becomes 66 "full-time-equivalent" (FTE) employees. You then add the 12 actual full-time employees. That local burger-joint chain now has, according to the SBA, HHS, and IRS, an equivalent of 78 full-time employees. That is more than the 50 employees in the original law. So, the small business owner must now provide healthcare plans to all of its employees.

Then, because of the individual mandate, the part-timers have to get insurance. Most likely, the insurance will cost most of their part-time paychecks. Granted, most of these workers are high school or college students who will be under their parents' plans. Even under that, the restaurant will still be fined if they do not provide a plan.

So, you see take-home wages reduced. You will also see the prices of the menu items jump to cover the increased costs of resources (human capital, also known as labor). That very well could lead to lower demand. That would mean lower receipts. That could lead to closing restaurants in the chain, reducing hours, or going out of business. Now, there will be fewer employees, less business, and the death of prosperity.

This begs a question on regulation versus legislation. Does the executive branch have the authority to change a law or redefine terms in a law? Because the executive branch, due to legislation, sees a tax-base shrink, do they have the power, without legislation, to redefine what that base should be in order to arbitrarily increase it?