ACA: Control group and the 50 employee count
December 18, 2012
By Scott Lyon, Senior Vice President
Is your company part of a control group? Knowing the answer to this question is important in determining the number of employees for the Affordable Care Act and its impact on your company. You already know that the Affordable Care Act treats companies with 50 or fewer full-time equivalent (FTE) employees very differently than it does those companies with 51 or more FTE employees (click here for SBAM’s FTE employee calculator) and you know how to make the calculation regarding full-time employees and full-time equivalent employees. Additional ACA requirements that make getting the employee count correct include: Automatic Enrollment, Access to Exchanges, Small Business Tax Credits and Non-Discrimination Rules.
Now, I am going to add in one additional factor that some of our members may need to consider: Control Groups.
What is a Control Group? Probably the first thing to consider is that just because your companies have separate employer identification numbers (EIN) that the employees will be counted separately for the determination of the Affordable Care Act, and for that matter COBRA. They most likely will not be. That said, the single biggest factor is ownership of the companies. Generally there are three variations on a Control Group:
- Parent Subsidiary – A parent-subsidiary controlled group exists wherever a parent organization owns 80% or more of the equity in a subsidiary organization. (For corporations, the 80% + test is based on attaining that level of voting power or total value based on all classes of stock; for partnerships, the 80% + test is based on attaining that level of profits interest or capital interest; for trusts and estates, actuarial interests are used.)
- A “brother-sister”/common control group exists wherever the same five or fewer persons (counting individuals, estates and trusts as “persons”) (i) collectively own 80 percent or more of the equity in two separate trades or businesses, and (ii) taking into account the level of ownership each of those five persons holds in each of the two organizations (using a lowest common denominator approach) collectively own more than 50 percent of the equity in both of the trades or businesses.
- An “affiliated service group” exists wherever several organizations regularly collaborate in the services they provide to the public (typically, integrated services), and the several organizations are linked by a material level of cross-ownership.
Failure to correctly identify the “employer” can cause you or your customers to not properly understand which ACA rules apply to the company(s). Please take time to work with your CPA to get this count right because if you get it wrong… Without careful planning and examination of the ownership structure some employers, those who are part of a group of commonly-owned or commonly-controlled organizations related entities, may unknowingly find themselves subject to the ACA’s employer mandate, not be eligible for coverage on the Exchange, and be subject to a variety of new and unwelcome ACA requirements.
For more information please refer to Internal Revenue Code (the “Code”) Sections 414(b) and 414(c).