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Employers look to escape healthcare mandate


By Michelle Park, Crain's Cleveland Business
Posted: January 28, 2013 - 11:00 am ET
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Seeking to limit their costs under Obamacare, small and midsize companies are considering cutting jobs, slashing employee hours and using more temporary workers, and Northeast Ohio staffing firms are hiring more people to meet the anticipated demand.

The federal Patient Protection and Affordable Care Act as of Jan. 1, 2014, requires businesses with 50 or more full-time-equivalent (FTE) employees to offer health insurance that meets certain requirements or to pay to the government a penalty of $2,000 or $3,000 per employee.

That mandate has companies — particularly those flirting with the 50 FTE employee mark — strategizing how they can avoid being big enough to comply, local attorneys say.

“They're worried that they can't afford it, and they're angry that they're having this forced upon them,” said Seth Briskin, chairman of the labor and employment group at Woodmere law firm Meyers, Roman, Friedberg & Lewis.

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“I'm getting a lot of calls from clients asking about ways to escape from Obamacare,” Mr. Briskin said.

So is John McGowan, an employee benefits attorney with Cleveland law firm BakerHostetler, who says he and his colleagues are “buried” in work — almost twice as busy as they were this time last year.

“Anyone who's on the bubble (is thinking), well, if I just drop a few folks, reclassify a few, cut hours, then magic happens,” Mr. McGowan said. “Then life's good, and I'm not affected.”

The likelihood that some employers will restructure their work forces is unfortunate, Mr. Briskin said, “because it prohibits growth and it limits employment.”

But if more employers do use temporary workers, that would be a boon for Cleveland-based staffing firm Area Temps Inc., even with the additional costs it faces in offering health insurance to more workers on its payroll, president Kent Castelluccio said.

“I think your average employer is going to say, "The heck with it,'” Mr. Castelluccio said. “They're not going to want to take on the responsibility of healthcare. They're going to want to outsource that to a (staffing) specialist. They're going to make it my responsibility as the employer of record.”

Pass it on

To stay ahead, Area Temps has hired two people this year and plans to bring on another 10 to 15 in 2013, Mr. Castelluccio said.

“The worst thing in the world would be to not have enough staff to take care of this influx of business,” he said.

The firm also is considering enhancements to its internal system so that it can report in a streamlined way who of its thousands of temporary workers works enough hours to be considered a full-timer under the Affordable Care Act.

Obamacare only requires employers to offer health coverage to workers who log an average of 30 hours a week, attorneys said. For those that employ workers whose hours are more unpredictable, such as staffing firms, there is a look-back period of up to 12 months.

Also beefing up their staffs are Everstaff International — “we know we need to be prepared,” said CEO Danny Spitz — and Alliance Solutions Group LLC, both headquartered in Independence.

Alliance has hired six employees already this year and has another 25 hires in the 2013 budget, particularly in its industrial business unit, president Aaron Grossman said. Also, for the first time in its 12 years of operation, Alliance has a dedicated outside sales person.

“We think there's a lot more opportunity, and we want to be more aggressive in the marketplace,” Mr. Grossman said.

Businesses can bet on paying more for temporary workers: Staffing firms say they will pass on some of the cost of offering health care coverage to workers to the companies that use them.

“Paying a higher bill rate to ABC Staffing so that I don't have to cover health insurance for this employee — (businesses are) going to be OK with it,” Area Temps' Mr. Castelluccio said.

Time for a shave

Even those with no intention of cutting their ranks below 50 are strategizing. Some plan to shave hours of part-time staff so they won't be required to offer coverage to them, BakerHostetler's Mr. McGowan said, and he knows of at least one company that is considering splitting up into multiple entities so that each employs fewer than 50.

Those employers trying to mitigate the mandate's impact will want to steer clear of violating anti-abuse rules from the Internal Revenue Service and the Treasury Department, attorneys said. A hearing on those rules, which were proposed Dec. 28, is scheduled for April 23.

According to the rules, for example, the government almost always will consider a company to be employing someone full time if it were to employ the worker for 20 hours a week on its payroll while hiring the same person through a temporary staffing agency for the rest of the week.

“Regulators are concerned about employers that are going to have a rolling list of temporary employees,” Mr. McGowan said. “They're aware right now that employers are going to play games around the margins.”

It's prudent to watch for any expansion of those anti-abuse rules and to plan this year for next year, said Dan Clevenger, a partner at Canton-based law firm Day Ketterer Ltd., who serves as outside counsel for small to midsize companies.

Mr. McGowan said he's advising his clients to put together long-term plans, not a “one-trick pony solution” that may be disallowed eventually.

“If it quacks like a duck and walks like a duck, it's a duck,” Mr. McGowan said. “You can't just do a paper shuffle and assume that somebody's no longer your employee because you shuffled the papers in a different way.”

Alliance's Mr. Grossman anticipates the uptick in the use of temporary workers will take hold in the fourth quarter of 2013, particularly in the manufacturing and distribution fields, which employ a high number of lower-level workers.

With the cost of employing full-time, unskilled workers guaranteed to rise because employers either will need to offer coverage to them or pay the penalty, employers are likely to reassess the profitability of employing such workers full time, Meyers Roman attorney Mr. Briskin said.

That's why most agree that unskilled workers will lose out.

“If a business is looking at an unskilled worker and says, "Look, I can't afford to provide an offer of coverage, it's just too expensive for me,' I'm either not going to employ you or I'm going to employ you on a part-time basis,” Mr. McGowan said.


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