From the Hotline: Pros and Cons to Reducing Employee Hours

Question: We are meeting with a large employer client who is considering reducing all employee hours below 30 hours per week to avoid the 2014 health care reform mandate.  Can you provide us with some  HR pros and cons to share with the client?

Answer: What follows below are some thoughts about reducing employee hours below the 30 hours per week mark in order NOT to be subject to the employer shared responsibility provision under the health care reform laws.  For your client, the obvious reasons they have for dropping employee hours and not offering health benefits is the cost of the benefits or to avoid the penalty.

The questions to ask are these:  Is it worth the turnover, retention risks of key employees and poor employee relations and morale by not having a comprehensive total compensation program for the employees?  Employees will quickly understand that the reason their hours were cut was so the employer would not have to provide benefits and could leave employees wondering why they should be loyal to an organization that is not loyal to them.

The employer will need to determine what expenses they are most willing to save – financial savings versus higher employee relations and lower employee engagement costs.

Here are a few other thoughts to consider:

  1.  Employers have been offering health insurance coverage with no threat of penalty for not doing so and the vast majority of employers still offer it. This is because they do it for good economic reasons, such as competing for top employee talent and good will in their communities.
  2. With respect to total compensation packages, If an employer compensates employees less than their value (base pay plus benefits and perquisites), that employer will lose them to competitors that offer them more.   The best employees always have options and can find another job where they may feel more valued.
  3. There may be public relations issues if coverage is dropped, especially for publicly-held companies (a few years ago Wal-Mart suffered through a storm of negative public opinion when they dropped employee hours and stopped paying their benefits)