As the new Congress enters office, first on the Republicans’ legislative agenda is to alter the ACA’s definition of full-time, so it is consistent at 40 hours for all ACA requirements. This definition is currently used to determine firm size and which companies are subject to the so-called employer mandate. But there are multiple definitions of “full-time” in the law – understandably leading to confusion, higher costs and increased administrative burdens for small businesses, which could have a detrimental impact on employment.
For example, under the ACA’s employer shared-responsibility provision and for participation in the federal SHOP (Small Business Health Options Program) Exchange, full-time is defined as 30 hours per week. However, under the small business tax credit provision (SBTC), full-time is defined as 40 hours per week. And as a further source of potential confusion for businesses, the District of Columbia and each of the 16 states that operate their own SHOP exchanges can make its own determination of what constitutes full-time within their jurisdictions.
The House has passed H.R. 30 and the Senate has introduced S. 30, both bills to set “full-time” uniformly at 40 hours per week. There is opposition from the White House, which has promised to veto any such legislation.
But the proposal makes sense for a number of reasons – not the least of which is that it would allow small businesses to reduce their tax penalties and administrative costs, promote job growth and increase employment, and facilitate better compliance with the law. Additionally, absent a clear policy rationale for the variation in full-time definition, such unnecessary complexity should be avoided.
First, most employers with 50 or more employees already provide coverage to their full-time workers working 40 or more hours a week so they are unlikely to reduce hours of workers to avoid a benefit that they voluntarily provided long before the implementation of the Affordable Care Act. These same employers have been less likely to provide coverage to their part-time workforce and under the 30 hour definition will be required to pay penalties. Making the definition of full-time consistent at 40 hours per week would save small businesses approximately $54.7 billion in penalties over the next 11 years (according to estimates by the Congressional Budget Office). That is a real savings for employers who can then use that money to expand their businesses increasing overall employment.
Second, measuring who is full-time and who is not (using the 30-hour definition) has led to a confusing and convoluted look-back measurement process for employers, which most certainly will cause them increased administrative headaches. With a single 40-hour definition, they will save many hours in trying to comply with these provisions
Third, many have acknowledged the complexity of the ACA including the employer-shared responsibility provision. An unnecessarily complex law results in an increased administrative burden. Reducing the administrative costs of compliance would encourage better compliance with the law overall. One way to significantly reduce this complexity – is to make the definition of full-time consistent across all provisions of the ACA.
Opponents of this proposal say that this will encourage employers to reduce the hours of their employees to 39 hours a week to avoid the penalty. This argument misses a number of points. First, 91 percent of employers with 50 to 199 more employees currently voluntarily provide coverage to their workers many of which are full-time employed 40 hours a week. They do this because most workers seeking “full-time” employment also look for employers to provide health insurance coverage. Surveys consistently show that health care benefits are an important tool for attraction and retention and thus are considered a “best practice” for employers. So, the current 30 hour restriction would impose a burdensome mandate to employers to extend their coverage to what most consider part-time workers. This harms businesses and not only increases their compensation costs but also their administrative burden and thus reduces their profitability. Getting rid of this restriction would allow these businesses to grow with the economy and thus hire more workers in the future.
Janemarie Muley, Ph.D. is the author of Health Reform: What Small Businesses Need to Know Now!