Leave it to major corporations to figure out a way to provide fewer benefits to their employees.
Certain companies have been busy grooming their operations so that the burden of part-time employee health care benefits falls onto the federal government when the Affordable Care Act, aka Obamacare, goes into effect in 2014. Under the Act, employers with a workforce of 50 or more will be required to provide health care benefits to any employees who work more than 30 hours per week, or be required to pay a penalty.
Bad press to follow
The law states that a business must take an average of the total hours worked per week during the previous year to establish which employees are required to have their health care covered by the business in 2014. That makes 2013 the year an estimated one-third of employers will cut employee hours below the 30-hour threshold. Come 2014, employees in this situation will be covered between the expansion of Medicaid and the newly created health care exchanges.
Starting in January, Wal-Mart (WMT +0.53%) will begin logging which employees are falling below the 30-hour threshold. If part-time workers hired after Feb. 1, 2012 come up short of 30 hours during their annual eligibility check, they will lose benefits the following January, when Obamacare takes effect. Full-time employees and their covered spouses aren't out of the woods either. If at any time during the year a full-time employee's hours drop to part-time, their spouse immediately loses coverage.
Darden Restaurants (DRI 0.75%), the purveyor of casual family dining, doesn't appear to be treating its future employees as family. In a measure to lower costs, Darden plans to replace full-time employees who left the company with part-time employees. Ironically, its Olive Garden chain ditched the famous "When you're here, you're family" slogan back in October.
Like Darden, Sears Holdings (SHLD +0.00%) will begin offering employees a health care credit so they can choose a plan that best suits their needs. Should the credit fall short, the employee will make up the difference with all that extra disposable income they have lying around. But seriously, the fear is that these credits will fail to keep up with the pace of premium inflation experienced over the past 10 years. This puts employees in this situation at risk of having less coverage than before.
Conflicting signs
These businesses shouldn't have a tough time implementing this practice, considering the supporting academic research that shows part-time workers allow businesses to allocate their time more effectively, which in turn increases productivity. Taking the other side of this debate is consulting giant Mercer, which believes companies that adopt this practice run the risk of higher turnover, reduced productivity from a less experienced staff, and lower morale. Is it smarter for a business to trust a consulting firm grounded with years of industry expertise, or an academic finding?
To better help answer this question, businesses should consider the factor of employee dedication. A study from Michigan State University indicates that part-time employees are less dedicated to their job than their full-time counterparts.
As long as a company places a higher value on employee dedication than employee cost, it's probably not in its best interest to reduce employee hours below the benefits threshold.
The good guys
On the other side of the spectrum, there are companies that understand the value of supporting all of their employees. According to The Wall Street Journal, Costco Wholesale (COST +0.80%), Marriott International (MAR +1.48%), and Panera Bread, all stated they plan to make zero changes as a result of health care reform.
While Costco may skimp on frills, it never skimps on employee benefits. All of its employees are eligible for health care benefits after three or six months. Costco knows that its employees take care of its members, so it's in Costco's best interests to make sure they are dedicated. There's a reason Costco has one of the lowest employee turnover rates in its industry.
Marriott's business is all about the service it provides, up to and including fluffed pillows. How does Marriott build brand loyalty in this highly competitive space? It treats its customers consistently great, making them yearn for the same experience with each visit. It's for the same reason that McDonald's burgers taste the same no matter where you are in the world. Loyal customers expect a consistent experience, which is exactly what Marriott's employees are trained to deliver. If Marriott fails to serve its employees, it may negatively affect the customer experience.
What should investors expect?
Give businesses a loophole, and many will exploit it. Publicly traded companies have strong incentives to put profits before their employees' well-being. However, an immediate boost to the bottom line will reward shareholders in the short term, but the consequences of such actions will undoubtedly affect long-term performance. The best practices support and empower employees, instead of creating a disconnect between them and the company's overarching long-term goals. As consumers and investors, we can decide with our wallets what's socially acceptable to us. Should we support companies that add more liability to the system for the sake of reducing their own costs?
Has this loophole become another form of corporate welfare? Please feel free to leave your comments below.
