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Operators are struggling to determine whether it makes more sense to provide health coverage or pay the penalties tied to PPACA noncompliance. This article ran in the Dec. 17, 2012, issue of NRN. Subscribe today.
Steven Friedman, chair of the employee benefits practice at New York-based law firm Littler Mendelson, said some of his clients, which include restaurant companies and other businesses, are weighing the cost of not insuring their employees and instead paying the $2,000-per-employee penalty.
“Given the costs involved, it’s truly something to think about,” Friedman said. “It’s an issue for companies that want to be considered an employer of choice. They want to get the best employees, so they pay the cost of insurance.
“But others want to do just what the market requires, yet they don’t want to be perceived as less generous than other companies in the market. So they’re waiting to see what the other guy is doing before they decide.”
The notion of paying the penalty has crossed the mind of Penn Station’s Dunaway more than once, but the former certified public accountant said the loss of the business tax deduction dissuaded him from that choice. To manage the costs, he’s considering menu price increases and potential staff reductions.
“Will this raise prices and cause the marginally employed to have their hours cut? I think the answer is yes,” Dunaway said. “In an industry where you’re negotiating for percentages of pennies on single packets of ketchup, you don’t have the room in your margins to absorb more costs. And now you’re talking about adding on a couple grand per employee every year.”
At Popeyes, where 98 percent of the chain is franchised, growth hangs in the balance.
“I was talking to a franchisee who has two restaurants, and now he knows that if he opens a third, it would put him over 50 FTEs. So yes, it’s an obstacle to growth,” said Bower, whose company holds regular webinars and created workbooks to educate franchisees about the law.
“I don’t think not offering health care coverage is the most cost-effective way to handle this, either,” he added. “What I think the most effective way to go is for the government to give [business] owners incentives to offer insurance. But ... the law is what it is.”