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68% of franchise owners see Obamacare’s employer mandate as bad idea – IFA survey

Although the Affordable Care Act (ACA), a.k.a. Obamacare, was just recently introduced and is not fully implemented, it has showed a negative impact on the majority of the businesses in the USA. The Obamacare has already resulted in higher costs and fewer full-time positions for businesses according to a survey conducted by the International Franchise Association (IFA) and the US Chamber of Commerce which was introduced in November 2013.

Some 68% of franchise decision-makers and 91% of non-franchise decision-makers that took part in the survey said they saw the employer mandate as a bad idea. At the same time, 64% of franchise and 53% of non-franchise respondents said the law was already having a negative impact on their businesses. 

According to the report, franchise and non-franchise businesses with 40 to 500 employees together account to over 25% of all US employed citizens, or some 42 million jobs.

According to the report, franchise and non-franchise businesses with 40 to 500 employees together account to over 25% of all US employed citizens, or some 42 million jobs.

The employer mandate, also called the employer penalty, is a requirement under the ACA that every business with over 50 full-time equivalent employees should provide them with health coverage. If they fail to do it, businesses have to make a monthly penalty payment on their federal tax returns which is paid annually and is not tax deductible. The penalty is estimated at some $3,000 per every uninsured employee. Under the ACA, a full-time employee is an employee who works 30 hours or more per week or 130 hours or more per month.

The law was set to begin in 2014 but has been delayed until 2015, giving another year to employees to comply with the requirements and to provide workers with health insurance.  

It seems like the biggest issues the new law may provoke are related to the costs of health coverage and compliance. If the effects of the employer mandate are measurable now, by 2015, when the law is expected to be fully implemented, its effects will be even greater. The survey shows that the new law will also result in the decrease of the number of employers who provide healthcare. There is a risk employers will decrease health coverage or will drop it completely.

Employers might find themselves forced to cut hours and replace full-time employees with part-time workers. Many businesses have already undertaken business reformation programs even though the employer mandate will not be introduced within the next year. Some 31% of franchise and 12% of non-franchise businesses have already reduced employee work hours. Another 27% of franchise and 12% of non-franchise participants said they have replaced full-time workers with part-time or temporary employees.

Franchises are more threatened by these trends since they rely on hourly workers.

“The workforce, the backbone of the people here, are the hourly people. They rely on a 40-hour week. You take ten hours away, that’s going to kill people. But I guarantee you that more companies and corporations will do just that because that’s the loophole that is in there. It’s not a win‐win. Having everyone insured is a great idea, but this is the wrong way of going about doing it,” a quick-serve restaurant owner in Kansas was quoted as saying in the survey.

Another disturbing tendency the law carries is that businesses might not find incentives to grow and are going to stop making efforts to develop, the survey shows.

Some 59% of decision-makers of franchised businesses with 40 to 70 employees plan to make personnel changes due to the employer mandate to stay below the 50 full-time equivalent employee threshold. A little over half (52%) of the non-franchise interviewees said they would do the same.

The report read: “Multi‐unit and single‐unit franchisee‐owned businesses that employ 40‐500 people account for more than half of all U.S. franchise establishments and employment. These businesses provide 4.1 million jobs in over 379,000 establishments.”

The survey, which was initiated by the IFA and the Chamber of Commerce, was conducted between September 25 and October 18 and covers businesses with 40 to 500 employees. A total of 414 decision-makers were interviewed, 208 of which were from the franchise industry.