Employers With Part-Time Workers Face Challenges Under PPACA

September 14, 2012 (PLANSPONSOR.com) The Patient Protection and Affordable Care Act (PPACA) presents challenges for employers with part-time workers.

Under PPACA, employers must offer health insurance to employees who work 30 hours or more, but employers with seasonal, temporary or part-time workers may find challenges in tracking this. “For those groups, it’s much more difficult to determine who is working on average 30 or more hours a week,” Amy Bergner, partner at Mercer, said during a webinar hosted by the company.

According to survey results from Mercer, retail and hospitality, health care services and government are the most affected industries. Many of these employers – 66% of retail and hospitality, 59% of healthcare services and 40% of government – reported that part-time employees make up at least 10% of their workforce.

Mercer found that 46% of retail and hospitality employers do not offer coverage in a qualified plan to all employees working an average of 30 or more hours per week, while 30% of government employers do not.  

Employers that do not comply with changes under PPACA face shared responsibility penalties. “The bad news is we have very limited guidance [on how to comply],” Bergner said. The good news is that these changes do not take effect until 2014, she added.

The Internal Revenue Service (IRS) has set out safe harbors for plan sponsors to use for variable-hour and seasonable employees. These safe harbors allow a look-back measurement period of three to 13 months to determine an employee’s average hours, and require a “stability” period of at least six months (and no shorter than the measurement period) when employees determined to work 30-plus hours must be offered coverage.

The safe harbor also allows an administrative period up to 90 days. “This guidance allows a gap between the measurement period … and the beginning of a stability period,” Bergner said, adding that it appears many employers are already using these safe harbors.

Bergner emphasized that employers should ensure that their approach complies with the safe harbor provisions.

Taking Action  

Mercer asked employers that do not currently offer coverage to employees working 30 or more hours a week about their likely response to PPACA’s requirements.

  •  51% said they plan to change their workplace strategy so that fewer employees work 30 or more hours a week;
  •  27% said they plan to offer a lower-cost plan for newly eligible hourly employees;
  •  24% said they plan to make all employees eligible for the full-time employee plans;
  •  17% said they will offer the full-time employee plans to some, but not all, newly eligible employees;
  •  8% said they will pay the shared responsibility penalty; and
  •  only 3% said they will terminate medical coverage for all employees after the insurance exchanges become available.

Employers planning to change their workplace strategy so that fewer employees are eligible must keep in mind that employee performance and productivity can be affected by moving workers from full-time to part-time status, said John Derse, senior partner at Mercer.

Stefan Gaertner, principal at Mercer, said he and Derse studied the productivity loss of a company that reduced its full-time staff and found that although it “saved” $5 million in compensation and benefits by increasing part-time employment, it lost $30 million in productivity. According to Gaertner, “This is a cautionary tale.”

When choosing a strategy, employers should create scenarios and play them out, considering the cost and how it would affect employees and the company overall, he said.