Take control of the controlled group issue
An employer is an applicable large employer for a calendar year if the employer employed an average of at least 50 full-time employees, including full-time equivalent employees (FTEs). For this purpose, generally, an employer includes the client business as well as all the members of the client’s controlled group of entities and any affiliated service group as those terms are defined under ERISA. Thus, all of the full-time employees (including FTEs) of a controlled group of entities or an affiliated service group are taken into account in determining whether the members of the controlled group or affiliated service group are together an applicable large employer.
How about an example of the math before breaking down what constitutes a controlled group? Assume the client employs 30 full-time employees, and that client is a member of a controlled group of entities that includes the following: (1) Company A, a barber shop that employs seven full-time employees; (2) Company B, an Italian restaurant that employs 15 full-time employees; and Company C, a diving school that employs three full-time employees. Collectively, the client’s controlled group employs 55 full-time employees (30+7+15+3), and is therefore an applicable large employer group. Significantly, each member of the applicable large employer group is treated as applicable large employer that is subject to the employer shared responsibility payment with respect to its own employees. That means, for example, that Company A must make an offer of ACA-compliant coverage to each of its seven full-time employees in order to avoid penalty under ACA. On the flip side, this means that, if Company B were to fail to provide its 15 full-time employees an offer of ACA-compliant coverage, Company A would not be penalized with respect to Company B’s failure. Of course, Company B would be subject to penalty for its own failure to make an offer of ACA-compliant coverage to its own employees. As confusing and intertwined as a bowl of spaghetti, right?
When one steps into the shoes of the regulators, these rules make some sense. The primary goal is to place as many employers under ACA’s employer mandate as possible. Thus, this is the reason there’s aggregation of controlled group member and affiliated service group member employees for the purposes of determining applicable large employer status. Once found to be an applicable large employer group, the controlled group or affiliated service group members are disaggregated for purposes of application of the mandate (i.e., every employer stands on its own).
What exactly is a controlled group or an affiliated service group? The answer to that question is found within the numerous pages of very complicated regulations that set forth attribution, disqualification and exclusionary rules all aimed at a finding that a controlled group exists. That said, very generally, there are two general types of controlled groups, and we will not even touch affiliated service groups in this post.
A parent-subsidiary controlled group exists when:
- One or more chains of corporations are connected through stock ownership with a common parent corporation;
- 80% of the stock of each corporation, (except the common parent) is owned by one or more corporations in the group; and
- The parent corporation owns 80% of at least one other corporation.
A brother-sister controlled group exists when the same five or fewer owners own collectively or individually 80% or more with effective control of 50% or more of two or more companies. For purposes of the 50% effective control test, the smallest percentage of ownership in any of the suspect companies is counted.
For more information contact David Neider at Healthcare Consultants – 713.626.2838