July 18, 2012
Obamacare’s employer mandate has small businesses scrambling to reduce their workforce in anticipation of the law’s implementation in 2014. Under the employer mandate, businesses with 50 or more full-time employees have to provide coverage or pay a $2,000 penalty for every worker minus the first 30. Growing businesses have discovered that expanding their workforce beyond 50 fulltime workers is simply too burdensome. In order to survive, many of these companies will have to either scale back the hours of existing employees so that they are no longer classified as fulltime or let them go altogether. CNN reports on how a few businesses are grappling with their mandate:
Kari DePhillips, who co-owns the Content Factory, a public relations firm in Pittsburgh, was hoping she could just break up the company to sidestep the rule. Maybe one firm would do marketing while the other builds websites.
The small company is on pace to exceed the 50-worker threshold in the next few years. DePhillips doesn’t want to provide health care, and she definitely doesn’t want to pay the penalty, which would be $2,000 per full-time worker minus the first 30.
“A $40,000 fine to my company would be catastrophic,” she said.
A larger company mentioned in the same report is similarly burdened:
The other way business owners are planning to deal with the law is a devastating one. They plan to cut staff and switch full-time employees to part-time, which the law classifies as less than 30 hours per week.
That’s the reality for the 425 workers at David Barr’s nearly two dozen KFCs and Taco Bells across Alabama and Georgia. Barr has already done the math.
He currently provides health care for managerial staff only, and it costs him about $125,000 to cover the 30 who take it. Extending that to every full-timer would cost him another $545,782 a year.
Health reform’s creation of state insurance exchanges promises to bring down those costs, but Barr said any expenses even close to that will still outmatch his available cash.
“This business model isn’t meant to support those costs,” he said.
To minimize expenses, he’ll fire workers and cut hours to reduce the number of full-timers to 60. Then he’ll opt for the penalty instead of paying insurance. A $60,000 fine pales in comparison to the huge potential rise in health care costs.
Cashiers would be replaced by self-order kiosks, cooks with chicken breading machines. These options are too expensive now, he said, but they would make sense then.
Obamacare, if fully implemented, would be an enormous burden on the small businesses for years to come. In addition to those likely to lose their jobs the employer mandate, new entrants in the workforce will find that these small businesses are incapable of hiring. Under this disastrous scenario, we can expect months like this past June to become the new norm, with more adults signing up for government dependence than finding a job.