SMALL BUSINESS OWNERS BEWARE – COMMON OWNERSHIP AND COMPLIANCE WITH THE ACA
By now you’re probably tired of hearing about the ACA, well we have one more tidbit for you. We promise that next week we’ll be covering a different topic.
Small business owners may feel as if they’ve dodged the ACA bullet when it comes to the Shared Responsibility (Pay or Play) mandate. If you have fewer than 50 full-time employees/full-time equivalents you may think you are in the clear, and in many cases you are, until you consider common ownership or control groups.
If you own several small businesses (e.g., several small franchise companies or several small diverse companies) you must count the combined total of all the employees across all companies when determining your compliance with the shared responsibility rule.
Consider this scenario, you own a small insurance business with 25 full-time employees, a real estate business with 15 full-time employees and a vacation rental business with 10 full-time employees. You offer the insurance employees health coverage; however, you do not offer coverage to your other employees. Based on this control group scenario, you would need to comply with ACA’s shared responsibility mandate. Since you only offer coverage to 50% of your employees and their dependents, you would be penalized if any of the other 25 employees receive subsidized health coverage through the Exchange. If your full-time employee and full-time equivalent count when combined across all your businesses is greater than or equal to 50 you would need to comply with Pay or Play or face the penalties.
Small private business isn’t the only area where controlled groups can be a factor. During a recent ACA webinar we hosted, a question was posed regarding common ownership in the public sector. Do common ownership aggregation rules work in the public sector? If so, how do they work? If one municipality (e.g., a city) is very involved in another public entity (e.g., a housing authority) to the extent of appointing all board members, etc. how does that factor into common ownership?
The proposed regulations reserve for future guidance the application of the aggregation rules to government entities, churches, and conventions or associations of churches. In the meantime, such employers may rely on a “reasonable, good faith interpretation” of the aggregation rules in determining whether an employer under those circumstances is an applicable large employer. The ACA adopts the “controlled group” rules under the Internal Revenue Code (IRC) sections 414(b) and (c) and 1563(a) that apply to employer-sponsored qualified retirement plans. Under the IRC regulations, there are three different types of controlled groups: parent-subsidiary groups, brother-sister groups and combined groups. The IRC sections refer to “ownership” but can be applied to government entities by looking at interlocking board membership and whether one entity has the power to appoint or remove the board members of another entity. Generally, a “parent-subsidiary controlled group” exists for non-corporate entities when one entity has the power to appoint or remove at least 80% of the board members of another entity. A “brother-sister controlled group” may exist for non-corporate entities when the two (or more) entities have interlocking board members.
Make sure that you consider all your businesses when putting your ACA compliance solutions in place. Also, make sure that your compliance partner knows if you have common ownership. Employers must count the full-time equivalent status on a business-wide basis and take all affiliated businesses into consideration to determine whether they employ 50 or more full-time employees/full-time equivalents. All employers, regardless of whether public or private, should refer to their legal counsel on whether they meet a controlled group test.
