Dine: Restaurants face tough decisions on health insurance

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Tolga Sevdik, a co-owner in two Downtown restaurants -- Butcher and the Rye and Meat & Potatoes -- now has health insurance.

But like so many restaurant workers, he went years without coverage, even while working as a manager of a club in the Strip District.

It was a costly move. An appendicitis attack landed him in the hospital. And with it came a bill more expensive than a year at a private college that he's still paying off.

That experience is partly what prompted Mr. Sevdik and his business partner, chef Richard DeShantz, to offer health insurance to their employees. 'I don't want the people who work for us to end up in a similar situation,' he said.

Traditionally, small to mid-sized restaurants have been selective in whether they offer health insurance because it's expensive and restaurant profit margins are low. Some places offer it for management while others extend it to cooks.

Yet as more restaurants compete for staff in Pittsburgh's shallow applicant pool, health insurance is being offered as an incentive to stay longer, reducing the short workplace tenures and employee churn that are part of the restaurant industry culture.

The behemoth on the horizon is the Affordable Care Act, also known as Obamacare, with an encroaching deadline in January 2015. While this may seem far off, it's already shaping restaurant employment practices.

So while employees jockey for the position that affords them the best salary and benefits, restaurants are scrambling to understand how the changes will affect their bottom line.

According to the Affordable Care Act, restaurants that employ 50 or more full-time employees -- defined as 30 hours a week or more -- will be required to pay for health benefits. If they don't, they'll have to pay a $2,000 penalty per employee after the first 30 workers. Obamacare also mandates that the premiums employers pass on to employees can't exceed 9.5 percent of an employee's household income.

Mr. Sevdik and his restaurants are staying ahead of the law; they're offering health benefits to employees who work 30 hours or more a week once they have been employed for 90 days.

'We're trying to run like a corporate place,' he said. 'It's so hard to find good employees in Pittsburgh. One way to secure them is to make sure they're covered.'

For the past year Meat & Potatoes has covered 100 percent of management's insurance premiums and 50 percent of full-time staff insurance premiums, which translates to $66 a month per employee. These benefits will be extended to workers at the newly opened Butcher and the Rye by January 2014.

Under Obamacare, employee contributions could change, although Mr. Sevdik is not yet sure how. 'It's pretty confusing,' he said. 'I get emails about compliance from my insurance broker once a week.' Employers will eventually have to structure their health offerings so that an employee's maximum 'out of pocket' expense would be capped at $6,350 for the year, or $12,700 per family.

Restaurants that haven't yet aligned with the Affordable Care Act requirements are anticipating they'll be hit hard, particularly local mid-sized restaurants such as those run by Brian Pekarcik, chef and partner of Spoon as well as BRGR in East Liberty and Cranberry and Grit & Grace to open next month Downtown. He and his partner Richard Stern employ 140 people.

'It's really scary,' he said. 'For now, it's a multi-headed monster. And I fear it's going to get uglier before it gets better.'

Mr. Pekarcik currently offers UPMC Health Plan to management. He said he offers three plans: one for singles, another for singles plus one and a family plan, the most expensive of the three, costing the restaurant group $5,000 a year in premiums.

'If the laws remain, we're going to have to start analyzing key employees who we'll keep full time and discuss others who we'd have to push to part time.' By June 2014, he and others in his position will need to keep records that track workers' hours.

Nationally, 16 percent of restaurant workers are at risk of having their hours cut, according to estimates by the University of California at Berkeley's Center for Labor Research and Education, as reported by Bloomberg Businessweek.

Big Burrito Restaurant Group may also have to evaluate workers' hours. Big Burrito corporate chef Bill Fuller confirmed that the company offers insurance to all full-time employees. Beyond this confirmation, he declined to comment. The industry standard for full time is 40 hours or more a week. With 11 Mad Mex locations and five other Pittsburgh restaurants, the new definition of full time would cost the company thousands of dollars.

Mr. Pekarcik said the ACA could affect his livelihood, citing the costs at 'a couple hundred thousand dollars.'

'If we can't make it work, it doesn't just put my employees out of a job, it puts me out of a job.'

He acknowledged how much more competitive securing staff may become when fewer workers may be working full time. 'We need a larger applicant pool of reliable people,' he said.

The other effect of the Affordable Care Act on small businesses is that it may prompt some restaurants to reconsider expanding or opening additional locations. But small restaurants are exempt from the requirements.

Keith Fuller, chef-owner of Root 174, employs nine people at his tiny Regent Square restaurant. He went from having full health benefits when he worked at Eat'n Park-owned Six Penn Kitchen, Downtown, to having none when he went out on his own two years ago.

'This law doesn't really affect me that much,' he said, although another provision of the ACA would require that he sign up for an individual plan. Even though he plans to open a second restaurant before 2015, overall he'd employ fewer than 50 people.

In the meantime, Mr. Sevdik said that how to comply with the ACA is a frequent topic of discussion among restaurant owners. 'We're often asked how we approach this,' he said. 'Because right now, there's no way to get out of it.'

Melissa McCart: 412-263-1198 or on Twitter @melissamccart.