Cutting Hours is a Risky Way to Avoid Obamacare

Even with the employer mandate portion of the Affordable Care Act (ACA or Obamacare) delayed until 2015, companies are already looking for ways to get around the mandate. But they could find themselves in legal hot water if they adopt one of the most popular techniques – cutting employee hours.

Starting January 1, 2015, the employer mandate will require employers with 50 or more full-time or “full-time equivalent” employees to provide health coverage to its full-time employees. “Full-time” is defined as those with 30 or more hours per week. If employers don’t provide coverage, they will have to pay $2,000 per year on each full-time employee (excluding the first 30 employees) if even one employee uses federal premium tax credits to purchase insurance from the exchanges, or The Marketplace as it is now officially known. They can even incur penalties if they provide coverage, but it is not “affordable,” as defined by the law.

To avoid this complex and expensive mandate, some employers (including a Subway franchise, Forever 21, and Regal Entertainment Group) are cutting employee hours below 30 per week to ensure they don’t hit the 50-employee threshold or to reduce the number of employees that qualify. In her Forbes column, Grace-Marie Turner’s says this is creating a “part-time nation.” She points to data from the Bureau of Labor Statistics that show only one full-time job is being created for every four new part-time jobs.

But while these employers may save money in the short-term by not having to provide benefits, they could end up paying in the long run.  Citing an often overlooked provision of the Employee Retirement Income Security Act of 1974 (ERISA), The Wall Street Journal states that companies could put themselves “on the wrong side of the law” if they cut employee hours specifically to avoid providing healthcare benefits.

Section 510 of ERISA makes it illegal for employers to make employment decisions to prevent an employee from obtaining or keeping benefits. While single ERISA claims aren’t that costly, The Wall Street Journal warns of potential class-action lawsuits. Attorneys believe the employers who will be at the greatest risk will be those who take coverage away from those who previously received it.

Some attorneys feel the Section 510 provision may not be that big of a deal, especially if employers reduce the hours of employees who did not previously have coverage. But the Section 510 violation is not the only thing to fear.  Companies also need to take the demographics of their workforce into consideration, according to Human Resource Executive Online. If, for instance, a company cuts the hours of a group of older workers, they could be setting themselves up for an age discrimination lawsuit. And even if employees don’t seek legal remedies, cutting employee hours can damage a company’s employer brand, making it more difficult for them to recruit star candidates in the future.

Due to these risks, you may want to steer clients away from cutting hours to avoid the employer mandate.  Show them that there is a better way. You can provide them with contractors who are employed by a contract staffing back-office service.  That way, the back-office, not your client, is responsible for ACA compliance.  Just be sure to work with a back-office that provides ACA-compliant healthcare benefits. Whether they are provided by the company or by a third party, star candidates need and want quality benefits.

Obamacare is a huge issue for employers. As one of their most trusted employment experts, you can help them navigate this complicated law without damaging their bottom line or their reputation.