NOTE: Cerasis is not advocating for or against the Affordable Care Act in the below. This is a guest post from an author and expert on the ACA law. The below is a fact based blog post, which also does not favor or disfavor Obamacare, but simply posits the thought of a how it could affect manufacturing workers.
The Affordable Care Act, a.k.a “Obamacare” in manufacturing, creates a sense of urgency for savvy manufacturing employers to take a look at how the 8 hour work day may decrease productivity and how increasing employment may tackle the Skills gap and also decrease the cost burden of health care costs. This post was written as an additional point of how Obamacare will impact the traditional work hours of manufacturing employees and employment hiring practices after reading “The Death of the 8-Hour Shift” which was published in IndustryWeek on October 17. 2013.
Mario K. Castillo is an associate at Monty & Ramirez LLP in Houston, Texas where he helps employers address labor, immigration, and employment issues. Mr. Castillo is about to release version 2 of his popular book titled “The Business Owner’s Guide to the Employer Mandate: Affordable Advice for the Affordable Care ACT” which you can purchase on Amazon.com.
Obamacare in Manufacturing Solidifies Death of the 8 Hour Work Week
Typically, at the close of every calendar year, business managers begin to plan for the next year with the benefit of another year of experience under their belts. Those of us that advise business managers have been busy helping employers and business managers learn as much as they can from this previous year to employ lessons learned in the upcoming year. I came across such an article a few days ago denoting the death of the 8-hour shift as more or less the cost of heightened efficiency. One of the author’s main points is that a 24/7 manufacturing operation typically has a staffing ratio of 4.2 in most cases, “meaning that if employees work 40 hours each, it will take 4.2 people to cover each key position over the course of 168 hours in a week (4.2 x 40 = 168).” The author then argued that those shift changes produce inefficiencies that can be avoided if a standardized shift is raised to 12 hours as opposed to 8 hours. The author then posits that “other costs begin to separate eight-hour shifts from others.” I suspect that the Affordable Care Act (“ACA”) will also lead to the death of the eight-hour shift in manufacturing.
A Focus on Creating Employee Efficiency and Output
Conventional wisdom describing employer responses to the Affordable Care Act’s employer mandate (usually called the Obamacare “Play or Pay” requirement) typically focus on employees and counting employees. In addition to considering arguments for heightened efficiency as the article I cited earlier notes, savvy manufacturers should think of ACA compliance in terms of distributing labor in the most efficient manner possible in light of the Affordable Care Act’s employer mandate requirements.
The employer mandate, in basic terms, applies to employers that employ at least 50 full-time employees or their equivalent. Such an employer is called an Applicable Large Employer (“ALE”) under the ACA. ALEs must offer health insurance to full-time employees or risk paying a fine for failing to do so. Conventional wisdom has thus far focused on shifting employee types around to maximize the amount of part-time employees and minimize the amount of full-time employees. The incentive for this movement should be apparent, full-time employees are the type of employees that must be offered health insurance if they are employed by an ALE. Conversely, an ALE does not have to offer health insurance to a part-time employee. Most employers today, about fourteen months out from the employer mandate penalties commencement date, are preoccupied with two ACA issues: (1) either avoiding that ALE status; or (2) if that ALE status cannot be avoided, minimizing exposure to employer mandate penalties.
Because I don’t want to get carried away, I will limit today’s post to discussing methods by which higher efficiency through longer shifts can also help an employer avoid that ALE status. Nevertheless, before I continue, a caveat: manufacturing is a competitive industry where robust benefits can be the difference between gaining top talent and being left out in the rain looking in as your competitors get that talent. Having said that, there is a major difference from an business management perspective between being legally obligated to offer health insurance or pay a penalty and doing so to be an attractive employer in a competitive labor market.
Explaining Obamacare in Manufacturing
At any rate, under the ACA, a full-time employee is defined as an employee that performs at least 30 hours of service for a particular employer a week. Employers with full-time employees working hours in the low thirties might be unnecessarily placing themselves within the ACA’s control. For example, suppose an employer needs 90 hours of labor on a particular machine a week to make its quotas. If two employees operate that particular machine (at a rate of 45 hours each) that is more efficient under the ACA than if three do so (at a rate of 30 hours each). Remember, every employee that averages 30 hours of service a week or more is a full-time employee under the ACA. Now suppose as a manufacturer you have 20 of those machines on a plant floor. The difference in such staffing levels produces 40 full-time employees under the first arrangement and 60 full-time employees under the second arrangement. Assuming the employer employs no other employees, the employees in the initial arrangement do not have to be offered health insurance under the ACA, but the employees in the second arrangement are entitled to offers of health insurance from the employer.
Obamacare in Manufacturing: A Paradigm Shift
The Affordable Care Act is a paradigm shift that requires savvy employers to likewise shift the way they do business. Traditionally, the incentive for cutting down a shift’s length was to minimize the accrual of overtime. However, depending on the cost of overtime (which is determined on an employee-per-employee basis) and the price of health insurance in a particular market, the price of paying those two employees a combined extra 10 hours of overtime a week might be less than paying the employer’s portion of the health insurance premium. Additionally, if an employer decides, for whatever reason, to not offer healthcare benefits to full-time employees, the overtime cost of those 10 hours will undoubtedly be less than paying for three sets of health insurance premiums. When coupled with the efficiencies argued by the author I mentioned earlier in this piece, the appropriate answer for some small to medium-sized employers may not be to cut down hours but increase them.
What are your thoughts on Obamacare in manufacturing? Let us know in the comments below.