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The Wendy’s Company (WEN), Darden Restaurants, Inc. (DRI), Regal Entertainment Group (RGC): Will Obamacare Turn America Into a Nation of Part-Time Workers?

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In eight months and a hair over one week the Patient Protection and Affordable Care Act, also known as Obamacare, will go into full effect. The PPACA is a sweeping reform of our current health-care system aimed squarely at keeping premiums from skyrocketing; holding insurance companies accountable for the premiums they bring in by insuring they spend at least 80% of those dollars on patient care; and mandating that individuals and large businesses take responsibility for themselves and their employees by carrying health insurance or providing group coverage.


President Obama signing the PPACA into law. Source: White House on Flickr.

Obamacare: Friend or foe?
Earlier this month, I decided to take a walk on both sides of the aisle to point out the benefits and the drawbacks of Obamacare. Make no mistake about it — there are benefits and there are weaknesses to the bill. But perhaps no aspect of Obamacare works out as more controversial than the insurance mandate.

On a personal level, the insurance mandate is pretty clear. By law you are required to carry insurance — buy it or face a tax penalty, which will incrementally increase to 2.5% of your adjusted gross income by 2016. Looking at it from a business perspective is where things get a lot trickier.

For businesses with fewer than 50 employees, no such rules are in place to require them to provide health coverage to employees. Where things go a bit haywire is when you get into larger corporations. Large corporations, under the PPACA, will be required to provide insurance to full-time employees that meet the basic minimum standards under the new law. Employers aren’t required to pay for any of a full-time employees’ insurance; however, they will be penalized between $2,000 and $3,000 per employee for each situation where health costs wind up exceeding 9.5% of that employee’s income. If these businesses choose not to offer health insurance whatsoever, they will face a stiff $2,000 fine per employee.

As you might imagine, the reaction among the nation’s largest businesses has been mixed in response to the passing and upholding of the PPACA by the Supreme Court.

Now hiring, part-time only
In one corner, we have businesses across a myriad of sectors that have made no qualms about reducing their headcount or rolling back their employees’ hours in order to reduce their exposure or skirt the system entirely. Reconstructive, medical, and surgical device maker Stryker Corporation (NYSE:SYK) made the very unpopular decision to eliminate 5% of its workforce in November 2011 in order to reduce its expenses by more than $100 million annually because of the now-in-effect 2.3% medical device excise tax. Yet an even scarier scenario for America’s workforce exists that isn’t tied to layoffs or even outsourcing — it’s the threat of being bumped into the part-time category.

The Wendy's Co (NASDAQ:WEN)Part-time workers fall into the gray area of the PPACA in that only full-time employees of corporations numbering 50 or more persons are required to be covered. Businesses are under no obligation to offer health care benefits to part-time employees, nor will they be penalized by the federal government for not doing so. What this has done is create the impetus for a dramatic shift from full-time to part-time workforces.

One industry where this move is readily apparent is in the fast-food industry. CKE Restaurants — owner of Carl’s Jr. and Hardee’s, which was purchased by Apollo Global Management LLC (NYSE:APO) in 2010 — began hiring considerably more part-time workers last year to replace any full-time turnover. Similarly, but on a smaller scale, 11 franchised The Wendy’s Company (NASDAQ:WEN) locations in Nebraska cut back hours for about 300 non-management employees in January of this year in order to skirt the increasing costs associated with Obamacare.

However, this isn’t just limited to the fast-food industry. Darden Restaurants, Inc. (NYSE:DRI), which operates Red Lobster and Olive Garden, was one of the first companies last year to adopt a strategy that focused on hiring more part-time employees. Regal Entertainment Group (NYSE:RGC), the nation’s largest movie theater chain, reduced hours for thousands of non-salaried employees this month to put them under the 30-hour full-time threshold — and it blamed Obamacare as the direct culprit for the cost-saving maneuver.

The problem for employees being bumped back to part-time is threefold. First, reduced hours will mean a reduced paycheck. Chances are that these are employees already being hurt by the rollback of the payroll tax holiday, and they likely won’t be welcoming a cutback in hours. Second, it potentially reduces their chance of having part of their insurance paid for by the company they work for. Certain individuals will fall under the Medicaid expansion based on their income, but middle-class individuals being moved into part-time status will be stuck in individual mandate limbo. Finally, part-time schedules — and I speak first-hand here from my college days — are incredibly unaccommodating. You don’t make enough at one job, but finding a second job can be nearly impossible because of the ever-changing hours.

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