Fear not a 40-hour week

On Jan. 22, Chairman Lamar Alexander (R-Tenn.) held a hearing in the Senate Health, Education, Labor and Pensions Committee on the Forty Hours is Full Time Act.  This bill would raise from 30 hours a week to 40 the threshold at which ObamaCare requires employers offer their employees health insurance, eliminating the economic incentive to reduce employees’ hours to fewer than 30 a week.  The House passed its version of this legislation on Jan. 8.  I testified at the Senate hearing as the CEO of CKE Restaurants, Inc., which owns the Carl’s Jr. and Hardee’s restaurant chains.   

Democrats on the committee expressed concern that raising ObamaCare’s 30-hour threshold to 40 hours would encourage employers to reduce employees’ hours to under 40 as a means to avoid the expense of insuring them.  Unfortunately, I did not have the opportunity to address this issue at the hearing.  I could have addressed it from the perspective of a business that actually has such employees and understands the risks to which a 40-hour threshold would expose them. 

{mosads}First, those who argue that a 40-hour threshold would cause employers to reduce full time employees’ hours are implicitly conceding a point I’ve been making for the last couple of years:  Requiring ObamaCare coverage for uninsured employees based on an hourly standard incentivizes employers to decrease employees’ hours below that standard.  This is exactly why employers have converted hundreds of thousands, if not millions, of full time jobs to part time (under 30 hours) depriving workers of both hours and income.  It’s also why the Forty Hours is Full Time Act is important.  

A 40-hour standard would have far less negative impact than the current 30-hour standard because:  1) Far more full time employees received health insurance before ObamaCare; and, 2) those receiving such insurance are likely to be more valuable employees and less likely to see their hours reduced. 

The numbers at our company prove these points.

To comply with ObamaCare’s employer mandate, we’ve offered 6,900 employees health insurance.  We had offered 1,447 of these employees such insurance before ObamaCare and they still constitute the bulk (about 80 percent) of the employees we insure.  If any of our employees would be at risk of having their hours cut to less than 40, it’s these employees.  However, we offered them insurance in the past without government compulsion and we would continue to offer them insurance even if the threshold were 40 hours.  As such, a 40-hour threshold would provide no incentive to cut their hours.  So, why would we continue to offer them insurance? 

We have always offered employees at this level insurance because we believe it’s the right thing to do.  They are likely the prime support for their families and, as a group; we believed they were far more desirous of receiving compensation partly in the form of health insurance than the lower income employees they supervise.  Our ObamaCare enrollment numbers support this belief.  Of the other 5,453 employees who we newly offered insurance (all of those working 30 hours or more a week), only 420 people enrolled.  The other 92 percent declined our offer. 

Offering such employees health insurance was also the sensible thing to do. With employer-sponsored insurance, the employers’ payments covering premiums are exempt from federal income and payroll taxes. The employees’ portion of the premiums is also typically excluded from taxable income and, therefore, tax-free.  

For employees who earn enough to pay income tax (as most 40 hour a week employees would), the exclusion of premiums from taxable income lowers their tax bills and reduces the cost of health insurance. This benefit costs the employer nothing additional as the insurance becomes part of the employee’s compensation package.  If we didn’t offer our better employees this tax benefit, our competitors would. 

So, while there is no threat to the employees we have always covered, what about the 40 hour employees we didn’t offer insurance before ObamaCare?  Well, there just aren’t very many of them.  Of the 420 additional employees who enrolled for ObamaCare coverage, 197 (less than 1 percent of our 20,000 employees) work 40 hours or more.  The fact that these employees are working 40 hours certainly indicates that we need their expertise in the restaurants (such as experienced cooks or shift leaders) and reducing their hours would make little sense as we could lose them to competitors. 

However, even if we wanted to marginally reduce the hours of all 197 employees (which we would not), certainly the benefit of potentially increasing the hours and incomes of thousands of our other employees would more than offset this cost. 

The Democrats often cited the Congressional Budget Office (“CBO”) report on this bill, as supporting their position.  Actually it confirmed our company’s experience that changing ObamaCare’s threshold to 40 hours would result in only a “small percentage of employers” reducing employees’ hours.  As the CBO stated, this is because employers want to “attract the best workforces for their firms” and because employers with “mostly 40 hour workers have tended to offer health coverage at a greater rate than” other employers. 

Fears that the Forty Hours is Full time Act would result in massive reductions for full time employees are simply unfounded.  Sen. Joe Donnelly (D-Ind.), who voted for ObamaCare in the House and continues to support it, co-sponsored this bill stating that “common wisdom is that full-time is a 40-hour work week, and the health care law should reflect that.”  If the Senate is unable to pass even this simple bipartisan bill fixing one of ObamaCare’s unintended consequences, maybe the only real solution is to repeal and replace.

Puzder is the chief executive officer of CKE Restaurants.