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The U.S. House Small Business Committee's subcommittee on health and technology held a hearing on Oct. 2, 2013, to discuss how the Affordable Care Act’s (ACA) definition of full-time equivalent employees (FTEs) will impact small businesses.
Under the health care law’s employer shared responsibility requirements—commonly known as the “pay-or-play” provisions—an employer with 50 or more full-time or full-time equivalent employees will be required to provide health insurance that meets certain ACA standards to at least 95 percent of their full-time employees starting in 2015, or pay a penalty. The ACA considers a worker “full time” if he or she works 30 hours or more per week, as opposed to the customary 40 hours used in other employment statutes and regulations.
Many in the business community—as well as several labor leaders—have criticized this definition, claiming that it will lead many businesses to reduce part-time hours to below 30 and/or prevent part-time employees from taking additional shifts to keep employees from becoming “full time” under the ACA. To this end, members of the House and Senate have already introduced the Forty Hours Is Full Time Act, legislation that would increase to 40 the number of hours an employee would need to work to be considered “full time.”
Disincentive to Growth
During the hearing, Subcommittee Chairman Chris Collins (R-N.Y.) claimed that the ACA’s definition of full-time employees creates “a disincentive for businesses to grow and add new jobs,” and that “the consequences of this 30-hours-per-week definition are all too predictable: fewer work hours for employees and administrative nightmares for small businesses.”
Raymond J. Keating, chief economist with the Small Business & Entrepreneurship Council, echoed this sentiment, stating that the health care law “provides clear incentives to hire part-time over full-time workers if possible; reduce employee hours (getting them under the 30-hour mark); maintain staff levels at less than or cut back to below 50 full-time or FTE workers to avoid the employer mandate; and seriously consider dropping coverage altogether given the relative costs of providing, or not providing coverage.” He emphasized that in 2013 the vast majority of new jobs are part-time positions, so the 30-hour per week definition will have a great impact on small businesses in particular.
Under panel questioning, Rep. Collins asked if employers that are restructuring their businesses to avoid the health care mandate are at risk of running afoul of Employee Retirement Income Security Act (ERISA), which makes it unlawful to reduce an employee’s hours for the sole purposes of avoiding the provision of benefits. Keating was unsure if any employer has so far been found liable under ERISA for such a business decision, but noted that this possibility adds to the “air of uncertainty” surrounding the law and its regulations.
Fewer New Hires
Testifying on behalf of the National Grocers Association, Steven Hermann said that because of the new definition, “where an employer may have previously hired a new part-time employee with the expectation that they would work 33-35 hours per week, that employee will now be brought on knowing they are a part-time employee and their work week will be limited to less than 30 hours per week. Employers are likely to hire fewer employees, especially full-time employees, learning to do more with fewer workers in order to control costs.”
Stephen Bienko, testifying on behalf of the International Franchise Association, spoke in favor of the proposed legislation, explaining that “allowing employers to manage their workers to the traditional 40-hour work week would give employees more flexibility and eliminate the need to revamp longstanding employer personnel policies.” He noted further that small businesses do not have the time or resources to figure out the ACA and the many accompanying regulations.
By contrast, Dean Baker, co-director of the Center for Economic and Policy Research, disagreed with the premise that employers would cut part-time hours to avoid ACA compliance. He said that the “overwhelming majority” of employers that operate with at least 50 employees already provide health insurance coverage that meets ACA standards. In addition, he said that speculation about the ACA’s effects on the economy is premature.
According to Baker, “It is too early to assess the claim that employers are staying just below the 50 employee limit since we do not yet have data available on employment b+y firm size in 2013. However as a practical matter it is implausible that the behavior of these firms could have any noticeable effect on employment growth.”
He added that the data “certainly provide no evidence supporting the claim that the shortening of workweeks has been a widespread phenomenon.”
A complete list of panelists and links to their testimonycan be found here.
Ilyse Wolens Schuman is a member of the government affairs practice at the law firm Littler Mendelson and works with employers in multiple industries. © 2013 Littler Mendelson. All rights reserved. Republished with permission.
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