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Prepping for Obamacare, Chain Cuts Workers' Hours

Red Lobster
Courtesy of Darden
Red Lobster

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 declined to give details but said the test is only in restaurants in four markets across the country. The test entails increasing the number of workers on part-time status, meaning they work less than 30 hours a week. Under the new health care act, companies will be required to provide health care to full-time employees by 2014. That would significantly boost labor costs for businesses.

About 75 percent of Darden's employees are currently part-timers.

Bob McAdam, who heads government affairs and community relations for Darden, said the company is still learning from the tests, which was 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 industry wide prepping for the new regulations to take effect.

Darden, based in Orlando, Fla., has made cost cutting a priority in recent years as sales growth and traffic have 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. Bonuses for general managers have been reduced as sales have stagnated. Servers at Red Lobster are handling 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.

Darden isn't the only restaurant chain looking at managing labor costs.

This summer, McDonald's 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 the number of full-time employees.

Darden operates more than 2,000 restaurants in the U.S. and Canada, including its LongHorn Steakhouse. It employs about 180,000 people.

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