Wall Street Journal: Restaurant Shift: Sorry, Just Part-Time

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Washington, Jul 15, 2013 | comments

By Julie Jargon, Brenda Cronin and Sarah E. Needleman

Ken Adams has been turning to more part-time workers at his 10 Subway sandwich shops in Michigan to avoid possibly incurring higher health-care costs under the new federal insurance law.

He added approximately 25 part-time workers in May and June as he reduced some employees' hours and replaced other workers who left. The move showed how efforts by some restaurant owners and other businesses to remake their workforces because of the Affordable Care Act may be turning the country's labor market into a more part-time workforce.

Restaurants and bars have been adding an average of 50,000 jobs monthly since April—about double the rate from 2012. In June, they added a seasonally adjusted 51,700 jobs, up from May's 47,900 tally, but below April's 51,800. Overall, leisure-and-hospitality establishments hired more workers than any other industry in June, accounting for 75,000 of the 195,000 jobs added last month, according to the most recent Labor Department report, although economists cautioned against reading too much into one month's preliminary figures.

Views differ on exactly what is driving the hospitality industry's pickup. Other factors likely also were behind it, including the addition of new restaurants as well as a move to staff up hiring after scaling back during the downturn, according to some restaurant owners and industry experts. But a number of restaurants and other low-wage employers say they are increasing their staffs by hiring more part-time workers to reduce reliance on full-timers before the health-care law takes effect.

"I'd be surprised if the Affordable Care Act didn't have something to do with" the pickup in part-time hiring, said Paul Dales, senior U.S. economist at Capital Economics. "Companies don't want to pay for health care unnecessarily if they can avoid it, so they'll try to avoid it." However, he said "the effects will be harder to discern in the data."

For the entire U.S. workforce, employers have added far more part-time employees in 2013—averaging 93,000 a month, seasonally adjusted—than full-time workers, which have averaged 22,000. Last year the reverse was true, with employers adding 31,000 part-time workers monthly, compared with 171,000 full-time ones.

The Affordable Care Act requires employers with 50 or more full-time equivalent workers to offer affordable insurance to employees working 30 or more hours a week or face fines. Some companies have said the requirement could increase their costs significantly, although others have played down the potential hit.

The cost for small firms to comply with the health law will depend largely on the number of additional full-time employees that sign up for employer-sponsored coverage. Average annual premiums for employer-sponsored health insurance in 2012 were $5,615 for single coverage and $15,745 for family coverage, according to the Kaiser Family Foundation. That is up from $3,083 and $8,003, respectively, in 2002.

This month, the Obama administration announced a one-year reprieve—to 2015—on penalties for employers who don't meet the new health-coverage requirements. The administration said it was holding off on business penalties to give companies more time to adjust to the law's provision but hoped that companies would still comply with the intent of the law during 2014.

The administration says the law ultimately will help businesses by allowing them to pool risk with other smaller businesses in order to get more competitive rates. "The health-care law will decrease costs, strengthen small businesses and make it easier for employers to provide coverage to their workers, as we saw in Massachusetts, where employer coverage increased when similar reforms were adopted," said Joanne Peters, spokeswoman for the Department of Health and Human Services.

Restaurant owners who have already begun shifting to part-time workers say they will continue that pattern.

"Does the delay change anything for us? Absolutely not," Mr. Adams of Subway said, explaining that whether his health-care costs go up next year or in 2015, he will have to comply with the law. "We won't start hiring full-time people."

CKE Restaurants Inc., owner of the Carl's Jr. and Hardee's hamburger chains, last year began hiring part-time workers to replace full-time employees who left and as a result has boosted its overall workforce, though the company declined to specify how much. "Since passage of the ACA, we've increased the number of our part-time employees, although we haven't fired people to do so," said CKE Chief Executive Andy Puzder. White Castle Management Co., which has more than 400 burger restaurants, said it is considering hiring only part-time workers.

Ethan Harris of Bank of America Merrill Lynch is skeptical that health-care-related hiring by restaurants affected the overall jobs numbers. "Some companies have started this spring to redesign their workforce to keep people" beneath 30 hours a week, he said, "but it should be reflected in the average work week…and it is just not showing up in the data."

The average workweek for restaurant and bar staff has ticked up slightly this year through May to 25.6 hours, from 25.5 in 2012 and 25.1 in 2007, the year the recession took hold.

Mr. Harris said restaurant employment rolls might have risen partly because more Americans in a wobbly economy are willing to take jobs that previously were filled by undocumented workers and therefore weren't counted.

The numbers also likely reflect a stronger economy.

Restaurant chains including Panera Bread Co. PNRA and Wendy's Co. WEN have been adding full- and part-time employees because they have been growing. Chipotle Mexican Grill Inc. plans to open 165 to 180 restaurants this year, spokesman Chris Arnold said. "That, coupled with normal turnover, means we are always hiring," he said.

Still, some operators said their hiring of part-timers is driven by the health-care overhaul. Rod Carstensen, owner of 11 Del Taco restaurants around Denver, began in April converting his mostly full-time workforce into one comprising mostly part-time help to minimize his health-care costs. He estimates the costs could have climbed by as much as $400,000 a year without the change.

Mr. Carstensen had 180 full-time and 40 part-time workers and is in the process of switching to 80 full-time and 320 part-time workers who clock no more than 28 hours per week. He is plowing ahead despite the Obama administration's reprieve, he said, because "we need to get there anyway, and it will take until January 1, 2015, to make this transition."

Employers also are also considering workarounds. Mark Lettelleir, chief executive of M.B.A. Inc., a human-resources firm in St. Petersburg, Fla., is helping several different area restaurants manage their staff so they can share employees. The test program, which is expected to begin in the fourth quarter, will involve about 500 employees of both chain and local restaurants looking to retain their full-time employees without counting them as such.


 

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