Why Temp Agencies Are Learning to Love the Affordable Care Act

If you believe the stock market, the temporary staffing industry stands to gain from Obamacare's implementation.

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This is the first in a series of articles on businesses developing around, and in anticipation of, the Patient Protection and Affordable Care Act — a.k.a. Obamacare. 

Whatever your opinion of Obamacare, there’s no denying that its full implementation next year presents a major challenge for many businesses across the country. Starting in 2014, firms of more than 50 employees will be required to offer health insurance to their full-time employees — defined as those that work more than 30 hours per week — or pay a penalty. These expenses, along with added costs of complying with the law, will force many businesses to raise prices or reduce profit margins, two things business leaders never enjoy doing.

While these mandates will increase costs for many businesses across the country, there actually are others that will benefit from the law. Pharmaceutical and insurance companies were brought onboard early in the healthcare reform effort by the the Obama Administration, lured by the prospect of tens of millions of new customers who would be required to buy health insurance. But if you believe the stock market, another industry that stands to gain from Obamacare implementation is the temporary staffing industry.

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Staffing companies like Robert Half International and On Assignment have seen their stock prices soar since President Obama’s reelection in November, as the election made it nearly certain that the implementation of the law would continue as planned. “In general [Obamacare] is viewed as something that will lead to increases in the penetration rate of temporary workers,” says Tobey Sommer, an analyst with SunTrust Robinson Humphrey. Firms like Robert Half International are especially well positioned to benefit from the law, Sommer says, because they specialize in small and medium-sized companies, the very sort that may be using temporary workers to help them stay below that all-important 50-worker mark.

There’s also an opening for staffing companies to present themselves as experts in the labor rules of the Obamacare law, and as a resource that other businesses can turn to for help with its many rules and regulations. “The increasing burden of these regulations will cause some clients to throw up their hands and say, ‘I can’t deal with all of this,” says Sommer. And when that happens, a full-service staffing company could be the perfect place to seek help navigating the unknown waters of Obamacare.

This change comes during a time when the staffing industry is already doing well compared to the economy at large. According to Susan Houseman, an economist at the W.E. Upjohn Institute, temporary employment as a percentage of total employment is close to an all-time high. Houseman says that the overall weakness of the labor market has made it a buyer’s market when it comes to companies looking for labor. When market for labor is more competitive, firms often can’t get away with hiring high-quality workers on a temporary basis. But with the unemployment rate so high and wage growth stagnant, companies have found that they don’t need to make long-term commitments or offer generous benefits to get the same quality of work they’re used to.

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Even if some staffing companies are doing relatively well in this era of economic uncertainty, many still face hurdles with a weak economy and uncertainty about the new healthcare law. Steve Berchem, chief operating officer of the American Staffing Association says that his member businesses are concerned about Obamacare implementation — and that just because certain types of staffing firms may stand to benefit doesn’t mean the industry as a whole is welcoming the law.

“It’s a myth that temporary employees are part-time employees,” Berchem says. While many temp workers won’t average more than 30 hours per week over the course of a year, the IRS assesses Obamacare fines on a monthly basis. That means that if a temporary worker puts in 120 hours in a given month, the temp agency may be required to offer that worker healthcare or face a penalty. At the same time, many temp agencies are having trouble finding insurance plans for their workers because they often experience high turnover and employ people who are high-risk as far as insurance companies are concerned. Furthermore, Obamacare eliminated lifetime caps on coverage, making the riskiest to insure even less appealing to insurers.

As is often the case when it comes to dealing with government rules and regulations, large firms are more equipped to handle Obamacare than small companies. Large, publicly traded staffing firm tend to have teams dedicated to navigating benefits and regulation compliance, so adding another layer of rules and regulations  doesn’t hurt as much on the margin as it would for a smaller company. That being said, Obamacare implementation is something every business with more than 50 employees is going to have to grapple with in the coming weeks and months, and the smart staffing firms will be looking to turn that fact from a weakness into an advantage.

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