Popular, But Risky Method of Avoiding Obamacare: Cutting Hours

The employer mandate portion of the Affordable Care Act (ACA) or what most are referring to as Obamacare has been delayed until 2015, but many companies are already searching for ways to get around the new requirements. One of the most popular techniques companies are putting in place is purposefully cutting hours to circumvent the mandate. It’s risky and it could land stick those who try it with some tough legal issues.

As of the first of the year in 2015, employers with 50+ full time (or full time equivalent) employees will be required to provide health coverage to those employees. For this mandate full time is defined as workers who put in 30 or more hours/week. Employers who don’t provide the required coverage will be required to pay $2,000/year per full time employee. The mandate excludes the first 30 employees and is dependent upon at least one employee using the federal premium tax credits to purchase insurance through the Marketplace. Employers who try to get around the mandate by providing coverage that is not “affordable” will also incur penalties.

Companies who have decided to cut employee hours in order to avoid the mandate include Subway, Forever 21, Regal Entertainment Group, etc.) These groups plan to cut their employees hours to less than 30 hours/week. This will ensure they do not meet the 50 full time employee mark or at least drastically reduce the number of employees that would qualify under the current definitions as set down in the ACA.

While it may seem like a smart move, companies embracing such tactics may be doing more than cutting corners. They may be breaking the law. The Employee Retirement Income Security Act of 1974 (ERISA) includes an often overlooked provision (Section 510) that makes it illegal for employers to make employment decisions solely in order to prevent an employee from obtaining or retaining benefits.  Experts are speculating on the financial damage that could be on the horizon for companies who try to avoid the ACA mandate by cutting employee hours due to potential class action lawsuits down the road. Employers at the greatest risk will most likely be those who arranged employment in order to remove benefits/coverage from employees who previously qualified.

In addition to the potential legal issues due to Section 510 and the popular trend to cut hours to avoid the mandate coming in 2015, companies also need to consider their work force’s demographics. Companies who cut back hours on older workers could leave themselves open to age discrimination lawsuits. Company brands could see notable damage due to their maneuvering and it could decrease their chances of recruiting top notch employees in future.

Employers are encouraged to steer clear of the temptation to cut hours in order to avoid the employer mandate. There are better ways to deal with the upcoming changes. Some will find that they will be best served by filling their work force with contractors employed by staffing services. In this instance, the staffing service will be responsible for ACA compliance. This will avoid the hassle of meeting requirements of the new mandates as well as meeting the expectations of quality workers. They’ll still receive quality benefits packages; it will just be through the staffing service.

We’re not trying to sell anyone on the line that Obamacare isn’t an issue. As trusted employment experts, Blumenthal, Nordrehaug & Bhowmik is available to help you navigate the upcoming changes.