Wegmans And Forever 21 Employees Feel Looming Cloud Of Obamacare

By Sam Lewis

Employers dropping hours and benefits due to impending federal healthcare laws

Hiring has picked up in the U.S. in the last year, with nearly a million Americans gaining employment. The problem, however, is that almost 75 percent of these jobs are part-time and are low paying, like retail and food service jobs. Employers claim that part-time positions offer flexibility, not just for the worker but the employer also. If economic conditions improve, they can offer full-time work, if they slide, at the employer is aware of the costs of a part-time employee.

Employers are also wary about new federal healthcare mandates driving up costs in a slowly recovering economy. Full-time workers, normally eligible for employer-based benefits, are adding not only additional payroll, but additional operational costs. Part-time workers help to level out these costs that employers will face under the Affordable Care Act, best known by its nickname, Obamacare. The new law will require companies employing 50+ workers to provide healthcare coverage to employees working 30+ hours per week. Failure to comply will result in escalating tax penalties.

In July, Rochester, NY-based grocery chain Wegmans announced that voluntary healthcare benefits for part-time workers would be cut due to upcoming healthcare reform laws. Wegmans is often praised for its health benefits and has frequented Fortune magazine’s list of top companies to work for.  “As a private company, we don’t share specifics of our employee benefits programs. It’s a given that healthcare reform will result in some changes to our benefits program, but it will not change our commitment to meeting the needs of our employees,” Wegmans told The Buffalo News.

Just last week, Forever 21 became a part of the conversation regarding new healthcare laws. A Forever 21 employee memo leaked to the public stating that the fashion apparel retailer plans to cut hours of some full-time workers, reclassifying them as part time, effective August 31. The drop to part-time status would put those affected — stock associates, sales associates, store maintenance associates, accessory associates, and cashiers — in need of medical, dental, and vision insurance along with no longer being able to accrue paid time off. The retailer’s Facebook page stated the cuts affect “less than one percent of all U.S. store employees.” Additionally, on Facebook, Forever 21 denied speculation from the media and customers that the decision to drop full-time employees to 29.5 hours per week max had anything to do with additional costs of Obamacare. “Forever 21, like all retailers, staffs its stores based on projected store sales, completely independent of the Affordable Care Act,” Forever 21’s Facebook page read. It’s hard to question the skepticism of the move being independent of Obamacare as, according to Forbes, the privately held company had $3.4 billion in sales in 2012.

However, last month, the U.S. Department of Treasury announced a one year delay in the mandatory employer and insurer reporting requirements. The administration said the delay was designed to serve two goals. First, it allows the U.S. treasury time to find new ways to simplify reporting requirements that follow the new law. Second, it gives additional time to employers trying to make health coverage affordable and accessible for employees. Despite the delay in some aspects of the bill, and subsequent confusion of it, it doesn’t appear that any changes have occurred in hiring decisions. “Us and other people are hiring part-time [employees] because we don't know what the costs are going to be to hire full-time,” said Steven Raz, founder of Cornerstone Search Group, a staffing firm in Parsippany, New Jersey. “We are being cautious.”

Organizations still need work to be completed in order to turn profits. Reducing employee workloads increases capacity of work needed to be done, so more part-time employees are hired. Large companies are leaning on this trend, including Walmart, whose part-time associates total about 75,000. “As organizations and companies reduce the hours of part-time workers, they still have to replace the capacity, so they go out and hire additional part-time workers,” said Philip Noftsinger, president of CBIZ Payroll in Roanoke, Virginia, which manages payroll for more than 5,000 small businesses.

Economists speculate this reliance on part-time workers will fade near the end of 2013 and through 2014 as the economy becomes stable and U.S. businesses become more certain how the Affordable Care Act will impact their budgets. However, the stability may not translate into more full-time positions as functioning businesses may have grown accustom to very few workers for its profits. A Sageworks study found that profits per employee at privately held companies totaled more than $18,000 in 2012, opposed to about $14,000 in 2009. “Private employers are either able to make more money with fewer employees or have been able to make more money without hiring additional employees,” said Sageworks analyst Libby Bierman. “The lesson learned for businesses during the recession was to have lean operations.”

Many fingers are quick to point the blame at Obamacare for the surge in part-time employment accompanied by cut benefits, but it’s only one part of a multilayered equation. A slow recovering economy plays an important role in many employers’ hiring decisions. Simplifying a very complex problem, right now, employers are enjoying the flexibility and benefits (or lack of) that part-time employees allow them to have in a difficult-to-forecast and cash-constrained economic environment.