Health care compliance advice for restaurantsHealth care compliance advice for restaurants

This special report on health care is also available to subscribers in the Aug. 6 issue of Nation's Restaurant News. Subscribe here to read the full issue.

For restaurant operators who held off tackling health care reform in hopes the U.S. Supreme Court would declare one of the 2010 law’s key provisions unconstitutional, the time has come to take action.


The Court’s 5-4 ruling in late June upholding the individual mandate, or the requirement that most Americans buy insurance or pay a penalty, within the Patient Protection and Affordable Care Act gave the law momentum.


Under the law, employers with 50 or more full-time or full-time-equivalent employees are required to offer health insurance to those employees and their dependents or pay a penalty. The minimum penalty is $2,000 per employee. While the mandate to offer coverage does not go into effect until 2014 — and details surrounding many of the law’s requirements are yet unknown — there are deadlines to meet in the meantime.


While many large companies have been studying the possible implications of reform for a while, it’s time for smaller operators to get going as 2014 is just 18 months away.


Nation’s Restaurant News sought the advice of two attorneys, a benefits expert and a human resources consultant on how operators should proceed. Here Jennifer Mills and John McGowan, partners in the benefits group of law firm Baker Hostetler in New York; Chuck Conine, managing partner of Hospitality HR Solutions in Palm Springs, Calif.; and Jill Bergman, assistant vice president of compliance at Cohn Benefits Consultants in New York offer some pointers on how to take action.


Study the size of your workforce. Figure out if the mandate applies to you based on your number of employees. Look at your employment records and determine how many part-time 
and full-time workers you have. Under the law, employees who work more than 30 hours per week are considered full time. Although the requirement to provide coverage goes into effect in 2014, it will be based on your headcount in 2013.


“Restaurants are always going to have that hourly wait staff — servers, kitchen workers, hosts, a floating, dynamic workforce,” Mills said. “Before, you’ve worried about scheduling and paying them accurately, but you’ve had some flexibility in buying coverage. Now, you need an accurate head count.”


Examine your business structure. If you have multiple units, does each one function as a single business, or as one with common control in which the same group owns 80 percent of the venture? Having partners and investors in different locations could make the group a collection of multiple separate units exempt from the law. If that is not the case, operators might consider giving investors more equity to create separate businesses and reduce total employee numbers. If you have a family business comprising multiple units owned by separate family members, each is considered a separate business and may be exempt. A franchisee with a small number of units may be exempt, but a franchisee with 50 or more full-time or full-time-equivalent employees spread across several units will not be.


Review the benefits you currently offer. If you previously offered coverage only to owners and key managers, that won’t work anymore. Although nondiscrimination rules are currently on hold, you will have to offer what’s considered substantial and affordable coverage to all full-time employees. The definition of affordable remains somewhat vague, and because it is difficult to know an employee’s total household income, a so-called “employer safe harbor” has been established, exempting employers from penalties if they can document that the employee’s portion of health care costs is 9.5 percent or less of W-2 wages. If the coverage offered is considered unaffordable, it could result in a penalty to the employer. Currently, the law allows for a 90-day waiting period before coverage must be offered, which is important to consider given the industry’s typically high turnover.


Because employers are most concerned with the costs associated with providing health care to all full-time employees, employers should also re-evaluate the benefits they offer that are not required by law, such as vacation pay and educational assistance, and then assess what credit they are getting from employees for offering them. 


“Most employers have a wide latitude to amend such programs at will,” Conine said.


Understand the demographics of your workforce. Which employees already have health care coverage? Employees who turn down your offer of coverage because they already have Medicare or insurance through parents, who currently can cover children up to age 26, will not create penalties for employers.


Knowing the composition of your workforce can also help you tailor your coverage so it is most effective. Are your employees primarily low-income? Are they single-wage earners, heads of households, single mothers?


“If you have an obligation under federal law to offer coverage, why not make it as responsive to the people you employ as possible [and] get credit for it?” Conine asked. 


Get your employment records in order. You need to know who is working overtime, who is receiving tips and what employees’ household incomes are as claimed on their W-2 tax forms.


All of this information will play into the employer’s responsibility to educate employees on the health care exchanges, or marketplaces where workers and small businesses can purchase alternative coverage. Beginning in March 2013, employers will be required to educate employees about the exchanges, including the types of subsidies available to low-income employees. States will have flexibility in designing their exchanges, so operators with units in several states will need to be familiar with the differences between exchanges. The federal government will set up exchanges in states that choose not to establish their own.


“It’s a big unknown, how [exchanges] will be set up and the costs on the exchanges,” Bergman said. “But it doesn’t preclude you from starting the strategic analysis. There is no one-size-fits-all answer because there are a lot of variables.”


While operators have long lamented needing to police the tip reporting of their employees, proper recordkeeping will become even more important with health care reform. The reason: People with smaller incomes will be able to receive more tax-subsidized coverage, so there is an incentive for them to underreport income. 


“There will be a lot of new reporting requirements on employers,” said McGowan, who noted that more guidance on reporting requirements would be forthcoming. He anticipates a lot of restaurateurs will be hiring services that offer back-office support. 


“Reporting will be more burdensome, and it will be more important to do it correctly,” he said.


Model your options. Sit down with a knowledgeable professional who can guide you through an analysis based on your workforce and business structure, and who can explain what happens if you do or don’t offer coverage. Figure out the tax implications. Some employers may be eligible for certain tax credits depending on their workforce composition and compensation structure. Right now there is a value to the tax deduction you can take for providing health care. Understand the safe harbors so that even if one employee declines coverage and goes to an exchange, you can avoid penalties. 


“You can’t learn about this in sound bites,” Bergman said. “Strategic planning is critical to at least getting [your] arms around this. Model the worst-case and best-case costs, and take something in between.”


Carefully craft your message to employees. Explain that even though coverage is required, you made sure your coverage would be the most beneficial to the team. Keep communications positive to create goodwill among employees. If you’re opposed to the law, keep it behind closed doors.


“You’ve got a restaurant to run, so you need satisfied employees to do it,” Conine said.


Contact Robin Lee Allen at [email protected].
Follow her on Twitter: @RobinLeeAllen.