Chain puts health care law to test
New York • The owner of Olive Garden and Red Lobster restaurants is putting more workers on part-time status in a test aimed at limiting the impact of looming health coverage requirements.
Darden Restaurants Inc. declined to give details but said the test is only in restaurants in four markets across the country, not including Utah, where it operates the national-brand eateries and will open two LongHorn Steakhouses in December. The move entails boosting the number of workers on part-time status, meaning they work less than 30 hours a week.
Under the new health care law championed by President Barack Obama, companies with 50 or more workers could be hit with fines if they do not provide basic coverage for full-time workers and their dependents. Starting Jan. 1, 2014, those penalties and requirements could significantly boost labor costs for some companies, particularly in low-wage industries such as retail and hospitality, where most jobs don't come with health benefits.
Darden, which operates more than 2,000 restaurants in the U.S. and Canada, employs about 180,000 people. The company says about 75 percent of its employees are part-timers.
Bob McAdam, who directs government affairs and community relations for Darden, said the company is still learning from the tests, which were first reported by the Orlando Sentinel.
"We're not at a point where we have results," he said. McAdam also noted that Darden is not alone in looking at ways to keep labor costs in check, with companies industrywide prepping for the new regulations to take effect.
This summer, McDonald's Corp. Chief Financial Officer Peter Bensen noted in a conference call with investors that the fast food company was looking at the many factors that will impact health care costs, including its number of full-time employees.
"There's not a company in those industries that aren't looking at this," said Paul Keckley, executive director of the Deloitte Center for Health Solutions.
Keckley noted that follow-up legislation might be needed to ensure that companies do not shift more workers to part-time status to avoid providing coverage.
Nationally, 60 percent of companies offer health benefits, but the figure varies depending on the size of the company. Nearly all companies with 200 or more workers offer benefits, compared with 48 percent for companies with three-nine workers, according to the Kaiser Family Foundation.
Even beyond health care costs, however, Darden has made cutting labor costs a priority in recent years as sales growth has stalled at its flagship chains. In the most recent fiscal quarter, the company's restaurant labor costs were 31 percent of sales. That's down from 33 percent three years ago.
The reduction was driven by several factors. Given the challenging job market, Darden has been able to offer lower pay rates to new hires, as well as cut bonuses for general managers as sales have stagnated. Servers at Red Lobster now handle four tables at a time, instead of three.
And last year, the company also put workers on a "tip sharing" program, meaning waiters and waitresses share their tips with other employees such as busboys and bartenders. That allows Darden to pay more workers a far lower "tip credit wage" of $2.13, rather than the federal minimum wage of $7.25 an hour.