Restaurants Face Unique Challenges Under Obamacare
Almost 20 percent of American workers are working part-time, a historic high. Those part-time workers will be able to get health coverage beginning next year under Obama's Affordable Care Act, but many business owners worry about how they'll pay for it.
Business owners like Clyde's Restaurant Group, a family-owned chain of 14 restaurants in the Washington, D.C., area. For half a century, Clyde's has been a meeting place for politicians and lobbyists — like those who passed the Affordable Care Act — to meet over drinks away from Capitol Hill.
Restaurants face particular challenges adapting to the new health care laws. Supplemented by tips, most restaurant employees work for low wages. That means restaurant owners must pay a relatively larger portion of premiums than other businesses to make health care affordable.
It's not as simple as just cutting employee pay or raising prices to bring in the extra money needed, Clyde's Chief Financial Officer Jeff Owens says. Clyde's has had to rethink its business plan.
"It started out as a brainstorming exercise for us," Owens says. "We were able to sit in a room and ... list out any ideas that would generate either cost savings or additional revenue."
Some of those ideas included things like using paper napkins over cloth, reducing portion sizes and, of course, staffing changes. There's also raising prices, which Owens says is last on the list.
"It's a tricky thing, because it's hard to forecast what the decrease in your traffic is going to be," he says.
All of this, in order to prepare for bearing the increased cost of covering employee health care under Obamacare.
"For one to two years it's been the No. 1 issue on our radar," he says. "We're not trying to run away from it, but it's a frightening proposition."
SCOTT SIMON, HOST:
The U.S. Department of Labor says 175,000 new jobs were created last month, but the unemployment rate went up a tenth of a percent and almost 20 percent of American workers are working only part time, an historic high. Starting next year, businesses will be required to offer their full time workers health coverage under the Affordable Care Act, known as Obamacare, both by its supporters and opponents.
But many business owners worry about how they'll pay for it. Clyde's Restaurant Group is a family-owned chain of 14 restaurants in the Washington, D.C. area. For half a century, Clyde's has been a meeting place for politicians and lobbyists, like those who passed this very legislation to meet over drinks away from Capitol Hill. We visited the original Clyde's in Georgetown on Thursday night as the head chef prepped the wait staff for dinner service.
UNIDENTIFIED MAN: Soup of the day, we have bacon corn chowder. We're still at peak season about three weeks away from corn but corn is still nice right now and still fresh.
SIMON: Restaurant will face particular challenges. Most restaurant employees work for low wages, supplemented by tips, leaving owners to pay a larger portion of the premiums to make health care affordable.
UNIDENTIFIED MAN: What we need to do now is we're going to take a field trip upstairs. We're going to talk about the insurance. You guys obviously know in 2014, Obamacare, everybody has to have insurance by law.
SIMON: Today, Clyde's is giving the wait staff some information about the new law. They walk upstairs to the office to watch a video.
UNIDENTIFIED MAN #2: Okay, guys. Where's Charles at? All right.
(SOUNDBITE OF VIDEO)
UNIDENTIFIED MAN #3: In this presentation, we will review relevant health care reform updates that will impact each of you in 2014, as well as review the four new care person medical benefit plans...
UNIDENTIFIED MAN: I need you guys really to focus on this instead of eating, all right? I understand you guys want to try the food, but this is what we're up here for.
SIMON: Now most restaurants run on students who can use the money and people between jobs or those who need a second or third income to support their families. They may not want to pay more money for health care insurance. Seventy-five percent of Clyde's staff is under the age of 26 and may not feel that they need coverage. Jeff Owens, who is Clyde's CFO, says he has to rethink his business plan.
JEFF OWENS: It started out as a brainstorming exercise for us. We were able to sit in a room and, without making any judgment, we would list out any ideas that were going to generate either cost savings or additional revenue. For example, someone might say let's use paper napkins instead of cloth napkins and so we'd put that on the list. And someone might say let's reduce the portion size for our wild salmon. Instead of the 7 ounce portion let's portion a 6-ounce portion and we'll save some money there.
The staffing, certainly that's part of the brainstorming. I mean, is there an opportunity to replace two shifts in the kitchen with one swing shift and save a few hours of payroll. We are all putting our heads together and it's a real art to choose the ones that are going to be a good fit for us.
SIMON: And then, of course, you can pass on cost to the customer, too.
OWENS: And then, that's right. So as our last item on the list is going to be how much of a price increase do we need to put onto our menu. It's a tricky thing because, you know, it's hard to forecast what the decrease in your traffic is going to be. It's interesting. Someone had a creative idea that we could start to charge our tipped employees for the credit card commission to collect the gratuities that their customers leave for them.
The company spends probably $500,000 a year in credit card commissions for this tip income. You know, I'm not saying we're implementing all of these things, but it's a real exercise to come up with a plan.
SIMON: Now, Mr. Owens, what do you say to those people who might be listening who might be saying, but wait, your restaurant group along with other restaurants made a considerable amount of money for years by not covering employees and now you're going to be part of a plan that will be covering your employees and bring greater stability into their lives.
OWENS: Well, I think it goes back to just the classic economic model of a restaurant. I can't just simplify it and say, you know, if I gave everyone a 10 or a 12 percent pay cut I would be able to pay for this new benefit or if I increase my menu prices by 6 or 7 percent across the board I would be able to pay for this new benefit. It's really a matter of finding a way to be able to still operate under the new requirements.
SIMON: May I ask if you considered increasing your prices and telling people why?
OWENS: You know, I've heard that idea from some other operators to just list an extra 5 percent surcharge and say this is for the health care benefit of all the employees. I don't suspect that we will end up going that route. You know, we're going to figure out a way to make it work and it's going to be part of our business model.
SIMON: So put you on the spot even a little more, Mr. Owens, how do you feel about these changes?
OWENS: Well, I mean, it's a challenge but it's not a challenge that we're going to run away from. Certainly other companies are looking at paying fines or different ways to structure the organization to fall under the 50-employee rule. For the last two to three years it's been the number one issue on our radar and in conversations with our board of directors as the biggest challenge that we're facing.
So we're not trying to run away from it, but it's a frightening proposition.
SIMON: Not to put words in your mouth, is it possible to make it work you will have to reduce the number of people who hold jobs?
OWENS: Well, I think one thing that we'll be able to do is take advantage of folks that have limited availability. In the past, those folks have been hard for us to work with because they are a challenge for scheduling and training and so on, but by us figuring out a way to work with these folks, we will have more part-time employees.
SIMON: So this is, for example, the school teacher that can work Tuesday and Thursday nights for a few hours?
OWENS: That's exactly right. And, you know, it's not that we're going to take a full time employee and convert them into a part time employee, but we do have a lot of turnover in this business. So by just being open to working with the more part-time employees, that will be one of those items that I mentioned that would contribute to the cost of the benefit.
SIMON: Jeff Owens of the Clyde's Restaurant Group in Washington, D.C. New health care regulations go into effect next year. Transcript provided by NPR, Copyright NPR.