Misunderstanding ObamaCare’s Employer Mandate could be Costly for Small Businesses
BY ASHTON ELLIS
THURSDAY, AUGUST 08 2013

[W]hen it comes to the employer mandate, the key number is not whether there are 50 full-time workers – it’s whether the total number of hours worked for an employer is the equivalent of 50 full-time workers…

What if Congress amends a key part of ObamaCare, but doesn’t fix the underlying problem?

That could very well be the case if either of two bills passes to change the health law’s definition of a full-time employee.

As written, ObamaCare defines “full-time” as “an employee who is employed on average at least 30 hours of service per week.” A company that employs 50 such workers or more becomes subject to the law’s employer mandate, which levies fines ranging from $2,000 to $3,000 for every full-time employee not offered health insurance.

To avoid the mandate and its fines, many small businesses are planning to cut employee hours to stay below the 50/30 threshold. One study by the University of California Berkeley Labor Center estimates that as many as 2.3 million Americans working hourly jobs in the restaurant, retail and services, and nursing home industries can expect fewer hours (and less pay) as employers increase reliance on part-time staff.

Still, the business community is chaffing at the 30 hour definition since the normal standard for full-time employment is working 40 hours per week.

So, in order to make ObamaCare fit reality, Senator Susan Collins (R-ME) and Representative Dan Lipinski (D-IL) have introduced identical pieces of legislation to amend the law’s full-time definition to 40 hours per week.

Both are called the “Forty Hours Is Full Time Act of 2013,” and would replace “30 hours” with “40 hours,” but retain the 50 full-time workers trigger.

The idea behind the amendment push is to “keep the usual 40 hour full-time work week in place without sacrificing the goal of providing affordable, quality health to Americans,” Lipinski said in a statement.

If only it were that simple.

Because of media reports about the shift to part-time workers and legislative bills like those proposed by Collins and Lipinski, there is a widespread misperception that ObamaCare’s employer mandate applies only to individuals who themselves meet the definition of a full-time employee, however many hours it is.

This misperception creates the impression that all a company needs to do to avoid the employer mandate is reduce its full-time workforce and spread out its work to a greater number of part-timers.

But a careful reading of the law reveals a different story.

The text of ObamaCare and subsequent regulations say there are two ways a company can reach the dreaded 50 full-time employee (FTE) threshold. One way is to have 50 individuals, each employed full-time.

The other way is to add the number of full-time positions to the total number of part-time hours worked. Every time the number of part-time hours worked is equivalent to one full-time employee, ObamaCare will treat those combined part-time hours as one full-time equivalent employee. If enough part-timers can be aggregated into the number of full-time equivalent employees needed to reach 50, then the employer mandate will apply.

In other words, “Switching from full-time to part-time workers of equal total hours worked may not avoid the employer’s responsibility for offering its workers health insurance,” notes Andrew Kurz of HealthReformTrends.com.

The problem with the Collins-Lipinski solution is that it ignores the fact that ObamaCare’s employer mandate is really a tax on business formation and growth, not just jobs. What the FTE count means is that there will now be a practical limit to the amount of hours a small business can pay for before it is hit with massive increases in compliance costs. For example, under the current 50/30 formula, the threshold that triggers the employer mandate becomes 1,500 hours of work paid a week.

Passage of the Collins-Lipinski bill does not fix this problem. Instead, all it does is increase the practical limit of pre-mandate business growth by a third. By changing the formula to 40 hours, but keeping the 50 full-time employee and FTE measures, the bill raises the triggering threshold to 2,000 work hours a week.

Any work paid for at or beyond this threshold brings with it tens or hundreds of thousands of dollars in either fines or increased insurance costs.

Imagine the consequences. Depending on the business, once the mandate applies, it will take hiring many additional employees just to start making a profit again. This amounts to a huge tax on business growth as employers are forced to create new firms rather than expand an existing one, or forego expansion altogether. It could even stifle enterprise formation if the number of working hours necessary to make a business go falls between 50 full-time workers and a higher staff level that doesn’t escape the mandate’s profit-killing effects.

Either way, when it comes to the employer mandate, the key number is not whether there are 50 full-time workers – it’s whether the total number of hours worked for an employer is the equivalent of 50 full-time workers, however defined.

None of this is surprising if you remember that the whole point of the employer mandate is to force the private sector to pay for an expensive benefit that the government can’t afford.

That’s the essential problem with the employer mandate, and why the only economically prudent reform is to repeal it outright.

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