Jo Heinz (R) owns a Dallas-based commerical architectural firm. The increasing costs of benefits -- particularly health care -- come out of her small firm's bottom line.
NEW YORK (CNNMoney.com) -- Providing benefits to full-time employees is an increasingly unattractive option for small businesses. As a result, they are hiring part-timers.
"Everyone's focus right now is controlling cost," said Jo Heinz, owner of Staffelbach, a Dallas-based commercial architecture firm. Contractors and part-timers "are going to get the nod before the individuals who are looking for the full package," she said.
Thanks to the stubbornly high unemployment rate, there are plenty of workers willing to take a job without benefits.
"There are a lot of available people that can help you in whatever things you might need, even as a small business," said Maria C. Coyne, executive vice president of the business banking at KeyBank. "More often, we are seeing people using part-time help or even contract help."
Heinz employs 71 people and about 80% of them are full-timers with benefits. She provides an extensive package including retirement benefits, health insurance, and wellness programs.
Her part-timers have a shot at getting benefits if they "do well -- do exceptionally well," said Heinz.
Benefits are expensive. Depending on the employee's level and salary, a benefit package can cost between 20% and 28% on top of the base salary, said Heinz.
Job seekers "are going to have to understand that if they are demanding those benefits, their attractiveness in the job market is not as great," said Heinz.
Skyrocketing health care costs: Health care costs are the most expensive portion of Heinz's benefits package. She has seen 12% to 15% annual increases for the last four years. Every year, she shops around for more affordable employee benefits starting months in advance.
She is not alone.
"Oh my God, my health care benefits have gone up 1,000% in 10 years," said Liz Parker, who owns The Tulsa Rib Company with her husband, Steve, in Orange, Calif. The couple runs a catering operation and a single-storefront restaurant. "We are really Main Street, small business America."
The shop -- known for its barbecue -- has 35 regular employees. The Parkers provide health care and other benefits for their 14 full-timers.
On top of health care, Parker also has to pay taxes and retirement benefits for each full-time employee. "Every time we hire an employee that is full-time, whatever salary we give them, we attach 35% to the cost as an employer."
Recently, Parker lost a long-time, full-time employee. "We are not quick to pull the trigger to replace him," said Parker. She spread his hours out between existing employees who could take additional hours.
"Most businesses want to provide health care," said John Arensmeyer, CEO of the Small Business Majority, a nonprofit small business advocacy organization. However, many have to find a way to work around surging costs. "When it becomes too cost prohibitive, they will either drop coverage all together or increase the percent that the employee has to pay for the coverage," said Arensmeyer.
The Obama administration passed comprehensive health care reform last year intended to stem the surging costs of health care. The reform won't be completely implemented until 2014. But there are tax credits available now to help the smallest small businesses cover the cost of health insurance.
You get what you pay for: Offsetting costly benefits is employee loyalty, said business owners.
"I walked in Thursday night at midnight and my warehouse manager and my floral designer were still there working for events that they had on Friday. Not once did they complain," said Maxine Turner, co-owner of Cuisine Unlimited, a catering and special event planning company based in Salt Lake City. "You get loyalty and that means a lot."
Turner has 80 employees and of those, 60 are full time. A chef making a base salary of $55,000 costs Turner $13,800 a year in benefits, including health insurance, retirement and personal time off.
Cuisine Unlimited has tried having two part-timers sharing the reception desk duties. But one full-timer "took more ownership of her job" and has turned out to be more productive than two part-timers, observed Turner.
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