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Health law could boost use of temp workers

March 26, 2013
The health-care law could prove to be a boon for temporary-staffing companies as employers outsource jobs to sidestep complex requirements for medical insurance.

But some experts say the Affordable Care Act’s exceptions for temporary employees could undercut the goal of expanding coverage to more American workers.

“That could lead to an increase in part-time workers” who lack insurance, said Susan N. Houseman, an economist at the Upjohn Institute for Employment Research who studies staffing companies. “You regulate something and people will always try to find a way around the regulation.”

Starting in January, employers with at least 50 workers must offer affordable coverage or pay a penalty. To stay under this limit, some are considering outsourcing jobs to specialists such as Kelly Services, Manpower, Robert Half and Randstad, whose stock prices have soared.

“We are already getting inquiries from our client base for companies in and around 50 [employees], asking us to help them understand this legislation, and to inquire as to how we might be helpful,” M. Keith Waddell, Robert Half’s president, told investors on a conference call a few weeks ago. “Our response is that we can legally help them remain under 50.”

The health law is also prompting larger organizations to use temp agencies. By requiring employer coverage only for those who put in at least 30 hours a week, the act appears to create an incentive for companies to do less with permanent workers and more with part-timers, which are the main focus of staffing agencies.

Manpower is talking to clients about “a more flexible labor model,” where workers “might be working 29 hours a week,” company chief executive Jeffrey A. Joerres told investors in January, adding, “We definitely look at it as a positive.”

School administrators in Dothan, Ala., decided to hire substitute teachers through Kelly Services to avoid possible health-cost obligations if they were to employ them directly.

Dothan subs don’t get medical coverage now, and the district pays about $700 per month for the full-time teachers who do. “You multiply that times 300 [substitutes] and you’ve got a big expense,” said Dell Goodwin, personnel director for Dothan City Schools.

Little-known, complex rules developed by the Internal Revenue Service could also allow some full-time jobs placed through temp agencies to come without health benefits.

Manpower, Robert Half and other staffing specialists are giant companies, with far more than 50 employees. So they are subject to the same health act requirements as other companies to offer coverage to full-timers.

But in regulations issued last year, the IRS left an opening for employers of “variable-hour” labor such as temp agencies. If it’s not clear upon hiring that an employee will consistently work more than 30 hours weekly, companies get up to 12 months to determine whether the person is full time and qualifies for health benefits — even if the employee does end up working full time. Few temps last 12 months.

“The overwhelming majority of temporary help workers, even if they were working full time on a weekly basis for a number of months, wouldn’t be covered because of that 12-month look-back period,” said the Upjohn Institute’s Houseman. The rules, she added, “were written in a very favorable way for the temporary-help industry.”

There are good arguments for exempting new, variable-hour workers from health-coverage obligations, she said: Tracking who worked 30 hours during which weeks for health-plan eligibility would cause confusion for employers and insurers.

The upshot, however, is that most temporary help workers — nearly 3 million on any given day — won’t have employer-sponsored medical coverage even if they are working more than 30 hours, she said.

Under the health law’s mandate that everybody be insured, temp workers without insurance must pay a penalty or seek coverage in state-based marketplaces known as exchanges. Because of the lower wages typically paid by staffing agencies, temps will probably be eligible for tax credits or Medicaid.

Kelly chief executive Carl Camden played down the idea that employers will shed health-coverage liabilities by using temp agencies. He said he sees clients’ adjustment to the health act as “a modest opportunity” for his company.

“There is a portion of the staffing industry who think there will be a large amount of companies trying to avoid obligations under the ACA and trying to shift over to staffing firms,” Camden said in an interview. “I don’t see that as happening.”

Manpower and Robert Half declined to make officials available for interviews.

The bigger business may be helping companies navigate the law through consulting or by taking over temporary jobs they already have, Camden and other industry officials say.

“We expect that clients that have those kinds of workers and who are daunted by the complexity of the Affordable Care Act will look to staffing firms to help them manage those kinds of workers,” said Edward A. Lenz, senior counsel for the American Staffing Association, a temp-company trade group.

Staffing-company share prices have shot up, partly in response to the recovering economy and partly because of hopes for a surge in Affordable Care Act business, industry analysts say.

Manpower has risen by half since November while Kelly, Randstad and Robert Half are all up more than 35 percent, far more than the market as a whole.

A few years ago, when Massachusetts implemented its own requirement that companies provide health coverage to full-time workers, temp jobs increased six times as fast as in the country as a whole, said Jeffrey Silber, who follows staffing company stocks for BMO Capital Markets.

Officials running Dothan schools see a double benefit. By hiring substitutes through Kelly they’ll avoid possible medical costs and also dodge the complexities of how the health act affects subs, personnel director Goodwin said.

Sometimes subs work more than 30 hours and sometimes they don’t, she said, and keeping track of who would be owed health coverage “would just be a continuing accounting nightmare.”

Several other Alabama systems are starting to hire subs through Kelly, which has been offering health-law Web seminars through the state school superintendents association.

And no wonder, Goodwin said. At last year’s meeting of the American Association of School Personnel Administrators, “that was one of the hottest topics,” she said: “How this Affordable Care Act would affect school systems.”