Why businesses are already cutting employee hours to avoid Obamacare’s 2014 Employer Mandate.

12/19/2012 - 4:16pm

You may have heard news reports of businesses cutting back their employees’ hours to avoid or reduce Obamacare’s upcoming Employer Mandate penalties. But if the Employer Mandate doesn’t go into effect until 2014, why are businesses already cutting back on employee hours for 2013?

According to a recent congressional letter to the Obama Administration, the reason is because of a little-known IRS guidance document.

Under Obamacare, the Employer Mandate applies not only to employers who have at least 50 full-time (30-hour) employees but also to those who have at least “50 full-time equivalent” employees.[1]

The IRS document attempts to guide employers of “seasonal” or “variable hour” employees to predict whether the Employer Mandate will apply to them. It gives these employers the option of using a 12-month “look-back measurement.” So, if an employer in 2013 doesn’t have at least 50 full-time equivalent employees or if its additional employees after the first 50 are seasonal, it can rest secure that in 2014 it will be exempt from the Employer Mandate.

Anyone with half of a brain could guess what this might mean for employees in 2013. Of course, some employees are going to have their hours cut.

Public Relations professionals aren’t keen on issuing press releases that their organization is cutting back on employee hours. Never-the-less reports on employers cutting hours are trickling in in news reports.

Certain big restaurant chains have announced that they will be negatively affected by the Employer Mandate, but it’s not just the big chain restaurants that are planning to reduce employee hours. Here are several examples:

In fact, you can expect most businesses that know about this IRS guidance document will at least review their part-time employee policy and consider whether to limit part-time workers to fewer than 30 hours per week.

We've started a list of businesses that are being forced to cut or limit employee hours. If you know of others, send us a tweet with a link to the news story. Our Twitter handle is @RegWatch.

[1] Full-time equivalence for part-time employees is calculated by taking the total number of hours worked by all part-time employees in a month and dividing it by 120 hours. See P.L. 111-152 § 1003(c).
[2] We received the Memo and Policy pdf from the administrative office of Lake County, California. The county employee told us that this policy was passed at a meeting of the Lake County Board of Supervisors.