Is the ACA a Game Changer for How Companies Operate?
The ACA is fueling a fundamental shift in the composition of the American workforce. It is incentivizing both employers and employees to work fewer hours by placing penalties on full-time work, causing many to rethink the traditional 40-hour work week.
The ACA requires large employers to offer health insurance to full-time employees, or risk penalties. Generally, an employee who is expected to work at least 30 hours per week on a regular or indefinite basis, or 1,560 hours in a year, is considered full time. Because employers are not required to provide health insurance benefits to part-time workers, many employees are already seeing their hours cut and pay reduced as businesses transition to more of a part-time model for their workforces in order to avoid the ACA's employer mandate.
In most cases, businesses aren't actively trying to ignore their employees' needs by cutting hours; they simply can't afford to provide health care benefits. So, maintaining a part-time workforce becomes a necessity for success.
Health care reform supporters are quick to dismiss allegations that businesses are actively cutting employees' hours, however, reports from industry insiders and workers' unions paint a different picture. According to Joseph Hansen, president of the United Food and Commercial Workers Union, which represents nearly 1.3 million workers in the grocery and retail stores industry and the food processing and meat packing industry, there will be a tremendous impact as workers have their hours reduced and consequently their incomes reduced.5
Legislation titled Forty Hours is Full Time Act of 2013 was introduced in June challenging the definition of "full time" in the ACA as 30 and seeking to make it 40 hours a week.
2. "Small" businesses are trying not to become "big" businesses.
Small business drives the American economy. According to numbers from the U.S. Small Business Administration, small businesses comprise more than 99 percent of U.S. employer firms. And since 1993, small businesses have accounted for 64 percent of the net new jobs created.7 But if businesses continue to cut employee hours and even reduce hiring in order to keep their small business status as defined in terms of the ACA, it will have a major impact on our already unpredictable economic environment.
A poll of small-business executives conducted by the U.S. Chamber of Commerce and Harris Interactive showed that 71 percent of those who responded said the health care law "would make them less likely to hire employees" in order to keep from crossing the 50-employee threshold that would activate the employer mandate to provide health insurance coverage.8 And, a similar study by the International Foundation of Employee Benefit Plans found that one in five small businesses said they were already reducing hiring to maintain their small employer status.9
A separate report by the Small Business Administration shows 38 percent of small business owners say they have pulled back on plans to grow their business in response to the ACA.10 Conversations concerning the pros and cons of reducing hours for full-time employees, as well as making sure employers stay under the 50 count, are happening daily in business owners' offices. In most cases, these are companies that are successful, but they are nervous about increased costs. In almost every case, employers will suffer because of increased costs, administrative hassles and potential loss of employees. Employees will be hurt by working fewer hours, making less money or not getting hired in the first place. Many business owners don't have time to mess with additional headaches that are keeping them from growing. It has created an additional administrative burden and is limiting the growth of companies approaching the 50-employee count.11 Simply put, the ACA is hurting job creation by small businesses.
If companies retool their workforce to avoid increased costs associated with the ACA, this will create more demand for part-time workers which exacerbates an already alarming lack of skilled workers in America. In a recent survey of Express Employment Professionals franchises, owners cited an increasing need for workers in skilled trades such as CNC programming, welding, machinists, accounting and information technology. The survey further states that a top concern of employers is finding skilled workers.12
This disproportionate increase in the need for parttime labor created by the act will mean increased costs for those workers and will in turn increase the price of goods and services sold by companies. Higher prices on goods and services will force American companies to seek cheaper labor costs in foreign countries just as they have for the past halfcentury13 in order to remain competitive or face closing the doors.
Further, the Bureau of Labor Statistics reported that the American labor participation rate has reached a 35-year low at 63.2 percent, its lowest level since August 1978.14 An unprecedented number of Americans -- not just Baby Boomers -- have simply started giving up, leaving the workforce despite their desire to work. At the same time, an increasing number of Americans are becoming stuck in the taxpayer-funded social safety net. The declining labor participation rate further compounds the problem of filling part-time jobs being created in response to the ACA.
3. Increased use of staffing companies.
The number of temporary workers in America has increased by more than 50 percent since the recession ended.15 In 2012 alone, 35 percent of U.S. companies used a staffing agency.16 A 2012 McKinsey Global Institute jobs survey reports that employers intend to hire more part-time, temporary or contract workers through 2017.17 According to the American Staffing Association, 2.91 million people are employed by staffing companies every business day.18 With the implementation of the ACA, that number is expected to increase as businesses develop strategies to mitigate the expenses of health care reform and keep their workforce under the 50-employee mark.
Staffing companies are an attractive option for many businesses because temporary/contract workers are typically classified as employees of the staffing firm that placed them and are not factored in to the client company's total employee count. So theoretically, a company could hire 49 regular, full-time employees, supplement the remainder of their personnel needs through a staffing company, and still be classified as a small employer under the ACA.
Even large companies that are well over the 50-employee mark will likely turn to staffing companies more often to supplement their workforce. They can easily increase and decrease their staff levels in response to business demands, while the responsibility for providing health care coverage to those temporary/contract workers lies with the staffing company because the temporary/contract workers are not officially on the client company's payroll.
The proper use of temporary and flexible staffing helps companies remain nimble -- flexing to add workers when demand for their goods and services is high and pulling back to use only core staff when the demand is lower. This is a cost-efficient way to manage a workforce. Businesses also find temporary staffing an effective way to grow.
The impact of the ACA goes significantly beyond the issue of how to provide health care to those who lack insurance. Decades-long work patterns are being disrupted in ways that were not intended by proponents of the legislation. Based on what we see, sweeping changes in how Americans work, how much they work and how much money they make are on the horizon, particularly for unskilled workers who are paid by the hour.
As a staffing company, our interest is helping people so they can work more and make more. Our interest is helping businesses so they can grow and become successful. Any incentive that causes people to work less and make less is alarming.
The labor-related changes being brought about by this new law are serious, long-term and harmful. They may be good for the staffing industry today, but they are not very good for job creation, small businesses or workers.
1. "As Health Care Law Proceeds, Opposition and Uncertainty Persist," PewResearch, September,
2. Pew Research Center/USA TODAY Sept. 4-8, 2013.
3. USA Today/Pew Research Center Poll of 1,506 adults taken Sept. 4-8. Margin of error +/-3 percentage
points. Janet Loehrke, USA TODAY.
4. Richard Cauchi, "State Legislation and Actions Challenging Certain Health Reforms," National
Conference of State Legislatures, August 2013, http://www.ncsl.org/issues-research/health/statelaws-
5. Myers and Mears, "Businesses claim Obamacare has forced them to cut employee hours," NBCNews,
6. Dennis Jacobe, "Half of U.S. Small Businesses Think Health Law Bad for Them," Gallup Economy,
7. SBA Office of Advocacy. Frequently Asked Questions, Advocacy: the voice of small business in
8. "U.S. Chamber Releases Q2 Small Business Survey," U.S. Chamber of Commerce press release, July,
9. International Foundation of Employee Benefit Plans. 2013 Employer-Sponsored Health Care: ACA's
11. "Franchisee Questionnaire." Express Employment Professionals Industry Experts, September 2013.
12. "America Employed Survey." Express Employment Professionals Industry Experts, June 2013.
13. Gary Becker, "Concern About The Decline in Manufacturing in the United States," The Becker-
Posner Blog, April 22, 2012, http://www.becker-posner-blog.com/2012/04/concern-about-the-declinein-
14. "Employment Situation Summary," Bureau of Labor Statistics economic news release, September 6,
15. Carol Hazard, "Hiring explodes in part-time and contract work," TimesDispatch, http://www.
16. "How to Hire the Best Staffing Agency," Inavero, 2013, https://www.bestofstaffing.com/pdfs/how-tohire-
17. Tony Guerra, "Can Temp Jobs Become Permanent?," Chron, http://work.chron.com/can-temp-jobsbecome-
18. "Staffing Facts," American Staffing Association, 2013, http://www.americanstaffing.net/statistics
19. "Affordable Care Act Statement of Principles," American Staffing Association, http://americanstaffing
20. United Healthcare, http://www.uhc.com/; and Lockton Companies.