4 Affordable Care Act issues that impact restaurants

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I was on a call early today with one of my restaurant clients discussing the ACA impact on his group, when I ran across this article by Robert Lillegard in Nation’s Restaurant News. I shared this with him and wanted to share it with my readers. 

By Robert Lillegard

After six or more years of unsuccessful opposition to the Affordable Care Act, the restaurant industry is turning its focus to managing the fallout.

The Supreme Court has twice decided that the law will stand, most recently this June in the King vs. Burwell Supreme Court decision. Angelo Amador, senior vice president and regulatory counsel for the National Restaurant Association, said the focus now shifts to making the Affordable Care Act easier to deal with.

“The fixes that we needed before the Supreme Court decision are still needed today,” Amador says. “And they would have been needed regardless.”

But with the law weighing in at 11,000 pages, not every section is equally important. Here are four issues affecting the industry and how restaurateurs are dealing with them.

1. 30 vs. 40 hours

In order to prevent employers from reducing their “full time” worker hours to 38 or 39 hours a week to avoid paying benefits, Congress defined 30 hours a week as the floor for full time under the Affordable Care Act. Tim McIntyre, vice president of communications for Domino’s Pizza, said that provision may have inadvertent consequences.

“Defining full time as 30 hours could be devastating to the work force, especially if small business owners find the need to cut back employee hours,” McIntyre said by email. “What you’d likely see is a workforce full of people working multiple part-time jobs.”

This shift to a part-time workforce has happened at Dallas-based Dickey’s Barbecue Pit. CEO Roland Dickey Jr. said he’s had employment go down as he’s found efficiencies in his seven corporate units. He said that whether it’s at the corporate level or one of the brand’s 508 franchise locations, lower hours don’t equate to high performance.

“Thirty hours a week?” Dickey said. “I work 30 hours a week when I’m on vacation. We didn’t grow this business by working 30 hours a week.”

The full-time definition aspect of the ACA could be changing. In January 2015, the House passed the Save American Workers Act, which would make a 40-hour work week be considered full time, and there are at least two bills in the Senate which would do the same thing.

But Justin Klein, a franchise attorney and partner with Red Bank, N.J.-based Marks & Klein, said the issue isn’t as significant as many think.

“I don’t think the 30 hours vs 40 hours is really much of a difference especially in the quick-service industry,” Klein said. “I just don’t seeing the numbers being that different.”

Alisia Kleinmann is the CEO of Industree, the Washington, D.C.-based restaurant industry group that is hosting the Fast Casual Explosion conference in D.C. and Philadelphia. She says that smart operators won’t manipulate hours much, law or no law.

“I do 100 percent think that if employers are going to start messing around with hours in order to avoid providing healthcare they’re going to lose their best guys,” Kleinmann said. “If you value the staff you have, and want to retain them and be viewed as not a jerk, you have to award or support your best players.”

2. Reporting

The ACA has fairly extensive reporting requirements for tracking compliance with the law that requires paperwork for each covered employee. The idea is to make sure chains are not dodging the law by providing a paper trail the Internal Revenue Service can look at. If reporting requirements are not met, the IRS has the authority to levy fines.

“It’s the only way to see if people are in compliance,” Kleinmann said. “I think it’s a necessary evil.”

On the other hand, she agreed it could be simplified. Some chains, like Dickey’s Barbecue Pit, have ramped up human resources staff in response.

Dickey said the corporate office hired a full-time staffer just to handle ACA requirements for the 200 corporate employees. But some of his franchisees who are on the verge of growing to 50 full-time equivalent employees are hesitant to make the leap. Companies with 50 employees or more are considered large employers under the ACA.

“There’s been two people [franchisees] who have said they want to hold off,” Dickey said. “It’s the compliance, the reporting, keeping up with the 1094s and the 1095s.”

Rodney Eckerman is co-CEO of PizzaRev, the Los Angeles based fast-casual chain partially owned by Buffalo Wild Wings. He said his company had to switch from an in-house to a third-party payroll service to handle the new complexity.

“We had to switch employer payroll services because we needed to switch to a more robust tracking system,” Eckerman said. He says that the reporting requirements aren’t as onerous as other aspects of the law, as he’s already used to a higher paperwork burden from his state government.

“Running a company in California, everything’s more difficult than it should be,” Eckerman said.

But the reporting requirements may be simplified. Eckerman’s fellow Californian Mike Thompson belongs to the House of Representatives, and along with Diane Black (R-Tenn.) introduced H.R. 2712, the Commonsense Reporting and Verification Act of 2015. This would reduce the administrative burden of the ACA by requiring employers to only file paperwork for employees that apply for coverage on the exchange, rather than for every covered employee. It also omits the need to collect social security numbers from dependents and allows for electronic transmission of this information. H.R. 2712 was introduced on June 10 and is currently in subcommittee.

3. Discrimination rules

The core idea of the ACA is ending the gap in healthcare coverage between high-income and low-income workers.

When high-level executives are given extremely generous health plans not available to average workers, it distorts the healthcare market. So under the ACA, health insurance plans may not discriminate in favor of more highly compensated individuals.

“I do think the discrimination regulations are necessary because they prevent people from doing jerky things to lower level employees,” Kleinmann said. “They’re in place to serve a purpose.”

There are two possible tests for determining discrimination: if higher-end plan are simply available to all employees, or if a sufficient percentage of employees is actually signing up for those plans. If the courts decide to use the second test, it could make it hard for companies to offer better plans to their executives.

The NRA is not currently taking a position on this issue, viewing it as more of a future concern.

“There’s a lot of interpretations that are coming out,” Amador said. “The way we view it right now, they just have to make it [the same healthcare plans] available.”

That’s the path most restaurateurs are taking.

“We offer the same plan options to all of our employees,” Dickey said. “The receptionist at the front desk can get the same options I get.”

PizzaRev is offering several plans at varied prices. The cheapest plans are a couple hundred dollars for a young person, up to a couple thousand for an older employee with family coverage. Eckerman said that even the less stringent availability test puts a damper on his ability to reward employees.

“I believe a company should be able to discriminate,” Eckerman said. “The company should be able to pay one employee who is a rainmaker, a super producer, more than another employee, and this is just a form of payment.”

For now, companies still can. These provisions were supposed to be enforced starting September 2010, but in December 2010 the IRS announced that they would be delayed indefinitely pending more detailed guidance. As of September 2015, the IRS still hasn’t clarified and the provisions are still in abeyance.

4. Cadillac plan tax

In order to reduce excessive health care spending, help fund healthcare subsidies, and prevent employers from sheltering salaries from taxes by paying them out as extra health benefits, the ACA carries a new excise tax. In 2018 a 40-percent excise tax that’s been nicknamed the “Cadillac tax” will be charged on any plan that’s too expensive. The specific parameters are linked to the Consumer Price Index but if health prices rise faster than the Consumer Price Index as they have been, many plans could come under this extra tax. Some executives have argued this tax is gratuitous.

“You penalize companies for not providing it, but then with the discrimination penalty and Cadillac tax, you also penalize companies for providing benefits that are too lucrative,” Dickey said. “What if they had gone and incentivized companies?”

Eckerman said PizzaRev is too focused on current plans to worry about 2018, but said personally, he doesn’t see a need for the excise tax.

“If the goal is to have insurance for everyone, make that the goal,” Eckerman said. “The fact that a company would want to benefit key employees with a better plan, I don’t think that ought to have a tax on it.”

This is one issue where unions and CEOs have found some common ground. A coalition called the Alliance to Fight The 40 is pushing bipartisan bills to end a tax they say will lead to less generous health care plans. In April, a group of Democrats introduced a bill to the House of Representatives aiming to repeal the tax. The bill now has 145 co-sponsors. A similar bill was introduced in the Senate in September.

Five years after its passage, the industry still aims to adjust portions of the Affordable Care Act. It may have been passed all at once, but fixing it will be one slow step at a time.

“There’s no law that says you need to fix it all at the same time or fix nothing at all,” Amador said. “Maybe we can start taking some of these and move them forward.”

On the other hand, the ACA could turn out to be a boon for the industry. If restaurants are compelled to offer health insurance, it could lead to a more stable workforce with lower turnover. Kleinmann says she sees restaurateurs adapting to the law and finding a way to make it work.

“I do think it’s going to continue to be a point of contention,” Kleinmann said. “But I truly believe — and maybe I’m naïve — but I believe that the good employers, the good companies, will make it work for their employees.”

If you would like to discuss the Affordable Care Act or other important workforce management questions please reach out to me at Jim.Thomas@Kronos.com. Read the original article by Robert Lillegard at Nation’s Restaurant News here.

Jim Thomas is an Account Executive for Kronos, the world-wide leader in workforce management solutions.  Jim helps retail and hospitality companies leverage Kronos solutions to make their workforce more efficient, compliant and productive resulting in a better customer experience. 

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