It's been quite a rollercoaster ride for the restaurant industry over the past few years. From a quick adjustment to drive-thru and delivery that accelerated business and profits at the start of the pandemic to the Great Resignation that is leaving restaurants hemorrhaging workers and constantly short-staffed, it’s been a struggle for management to keep up.
Adding to the never-ending struggles, restaurants—particularly quick-service locations—are now faced with mounting increases in costs for ingredients and supplies combined with a slowdown in business as consumers become more frugal in the face of rising inflation. Plus, restaurants must deal with significant administrative tasks, including the need to offer insurance for their workforce or face aggressive IRS action for non-compliance with Affordable Care Act (ACA) requirements.
The Healthcare Conundrum
While offering health insurance and other benefits is required for most restaurants, many have traditionally viewed it as a costly and time-consuming proposition that results in minimal return. For many restaurant workers, hourly wage is their most important consideration when accepting, or staying in, their jobs. The extra costs they would incur for health insurance cuts too deep into their weekly paychecks, so many simply do not take advantage, even when it is offered. In fact, according to the Bureau of Labor Statistics, only about 32 percent of hospitality workers have healthcare coverage, compared to more than three-quarters of employees in other private industry jobs.
There are factors beyond the costs that are keeping this percentage low. Many restaurant workers may already have insurance through Medicaid and state exchanges or receive other subsidies for healthcare. And restaurant management often have difficulty communicating the availability of these benefits to a widely dispersed workforce, which may not have Internet access or email addresses, who may not speak fluent English and are more likely to use prepaid phones.
Administrative challenges also impact restaurants’ ability to effectively offer insurance and benefits. Many restaurant owners still rely on antiquated systems, or they need to implement new systems to track eligibility and enrollments to maintain ACA compliance.
Getting Creative with Benefits to Hire and Retain Workers
The ACA requires most restaurant owners and operators to offer health insurance to their employees, regardless of whether they choose to use that benefit. In today’s post-COVID world, many restaurant owners have discovered that traditional health plans are a requirement, at a minimum, as an incentive for managers to stay. But, in a drive to keep up with hiring and minimize turnover, they're also getting more creative in the types of benefits they offer to all employees across the board.
In addition to basic health insurance offerings, more restaurants are expanding offerings with less expensive options that appeal to all levels of employees. Among these options are vision and dental that may not be part of their other healthcare coverage; and voluntary benefits, like disability, catastrophic and life insurance. Other differentiating programs may include family or elder care leave, flexible pay schedules, flexible scheduling, financial planning assistance and help paying for education.
Chipotle, for one, is taking this approach to minimizing turnover in its ranks. The chain is offering a debt-free education program, which has resulted in a retention rate that is 3.5 times higher for those enrolled in the program. Chipotle also offers a health concierge for all of its employees and their families to help them access mental health resources and telehealth appointments, and offers additional services to those enrolled in the company-sponsored health plan.
Making Benefits Affordable
While potentially less expensive than traditional healthcare, these creative benefits designed to improve hiring and retention still come at a cost. So, with prices rising across the board and business foundering amidst the fallout from the pandemic, how can restaurants afford to implement these programs?
There are a number of tax credit programs that restaurants may be missing out on. And the savings resulting from these could ultimately help fund new programs for employees. If you’re not already taking advantage of tax credits, here are some prominent programs you should consider:
Employee Retention Credit (ERC)—A refundable federal tax credit against the employer share of Social Security tax equal to 70 percent of the qualified wages paid to employees December 31, 2020, through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. To qualify, restaurants would have had to have experienced a full or partial suspension of operations during this period because of governmental orders limiting commerce, travel or group meetings due to COVID-19, or a decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019.
Work Opportunity Tax Credit (WOTC)—A federal tax credit available to employers for hiring individuals from certain targeted groups, including those receiving state aid or food stamps, veterans and ex-felons, who have consistently faced significant barriers to employment. The credit comes against the employer’s share of Social Security tax.
FICA Tip Credit—A tax credit available to certain food and beverage establishments enabling them to claim a credit for social security and Medicare taxes paid or incurred on certain employees’ tips. This credit reduces the amount of federal income. Unused credits can be carried forward up to 20 years until they are completely utilized.
Disaster Zone Credit—These federal tax credits are available to employers that have been affected by qualified disasters, such as wildfires, hurricanes, flooding and the COVID-19 pandemic. The credit amount is equal to 40 percent of the qualified wages paid to each eligible employee, up to $6,000, which makes the maximum credit available per eligible employee total $2,400.
Restaurants may think they cannot afford to offer basic health insurance, much less other benefits that may be just what prospective and existing employees want. But with a bit of creativity and taking advantage of tax credits that they are eligible for, restaurants can better position themselves to weather the Great Resignation, and have the perks needed to attract and retain their employees.
Derek Moore is the Senior Vice President of Employee Benefits at Venbrook Insurance Services.