ADP Benefits From Delay In Obamacare’s Mandatory Reporting Requirements

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The Affordable Care Act (ACA) lays down detailed reporting requirements for large employers, necessitating them to provide stipulated health care coverage for their employees. The ACA was brought into regulation under President Barack Obama’s overhaul of the employee health care coverage in the United States. Firms will have to bear heavy penalties if they fail to provide health coverage to their employees by 2014. Many firms delayed their hiring activities owing to these reporting requirements as well as a lack of clarity pertaining to the finer points of the regulation.

The U.S. Treasury Department recently announced an extension in full reporting requirements to 2015, from the current deadline of 2014, giving companies another year to fully comply with the regulations and to iron out any issues that may arise while implementing the entire process. [1] This extension is expected to spur hiring activities among large firms and ADP (NYSE:ADP) is set to gain from the surge in employment since it is the largest payroll processing firm in the United States. Payroll processing accounts for about 80% of ADP’s value and added over $7 billion to the company’s annual revenue last year.

See our complete analysis of ADP here

Positive Private Employment Data And Slower Layoffs Brighten Outlook

ADP in association with Moody’s Analytics, publishes a monthly report ahead of the Bureau of labor Statistics employment data release. The report indicates the estimated growth in the private-sector jobs in the U.S. over the previous month. The latest report suggests a growth of 188,000 private-sector jobs in June, up from an increase of 134,000 jobs in May. More importantly, the growth is broad based as employers of all sizes are adding to their payrolls. The report indicates that small businesses, employers having less than 50 employees added 84,000 jobs in June versus 58,000 jobs in May, while medium-sized businesses (those having less than 500 employees) and large businesses (those having more than 1,000 employees) added 55,000 and 49,000 jobs in June respectively, up from 39,000 jobs each in May. [2]

The indications of a rebound in economic activity is also supported by the fact that the 4-week moving average of the U.S. jobless claims have fallen to 345,500 for the 4-weeks ending June 29, down by 35,000 over the previous year. Jobless claims refer to people who apply for unemployment insurance claim for the first time, thereby acting as a proxy for the number of layoffs in the economy. [3]

The positive employment data and slower layoffs during the year ending June 2013, will have a favorable impact on ADP’s payroll processing as well as HR outsourcing division. The company will announce its annual earnings for the year ended June 2013 in the first week of August, and we will be closely watching the percentage impact of these trends on the company’s top as well as the bottom line.

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Notes:
  1. Continuing to Implement the ACA in a Careful, Thoughtful Manner, Mark J. Mazur, U.S. Department of the Treasury, July 2, 2013 []
  2. ADP National Employment Report: Private Sector Employment Increased by 188,000 Jobs in June, July 3, 2013 []
  3. Unemployment Insurance Weekly Claims Report, July 2013 []
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