How Are Controlled Groups Handled Under the ACA?
The core principle of the Affordable Care Act is the clause that enacts a tax on companies who fail to offer affordable healthcare plans to their employees. Specifically, these companies are defined as Applicable Large Employers (ALEs), who employ 50 or more people on a full-time basis.
It’s relatively simple to determine if a company should offer healthcare plans to its employees, since it’s fairly straightforward to see if there are 50 or more full-time employees. However, this process might not be as simple for an organization’s subsidiaries, sister companies, and companies in which they might have a controlling financial interest. In ACA parlance, these smaller companies are termed “controlled groups”.
What Defines a Company as a Controlled Group?
A company is defined as a controlled group when it matches one of three sets of criteria; however, as with all things concerning the ACA, this can be highly circumstantial and subject to exceptions.
- Parent-subsidiary controlled groups are the “classic” style of controlled groups, wherein the smaller company is owned by a parent company through stock ownership or direct control
- Brother-sister controlled groups are groups of two or more companies that are subsequently owned by five or fewer co-parent companies.
- Combined groups are perhaps the trickiest groups to identify and define. Each member of a combined group is a company that qualifies as a controlled group according to either of the above-defined criteria.
What do Controlled Groups Mean for ACA Compliance?
In general, employees of companies in controlled groups are eligible to receive an offer of a healthcare plan if they qualify as a full-time employee. The IRS tends to view all organizations with subsidiary relationships as a single company, regardless of the degree to which parent or sister companies control the actions and policies of their subsidiaries.
As stated before, any ALE with more than 50 full-time employees is obliged to offer healthcare plans to all eligible employees. Thus, it’s very likely that any given parent company will be expected to provide healthcare to its employees, or face the usual “pay or play” taxes as mandated by the ACA.
Are My Subsidiary Companies Considered Controlled Groups?
It can be very difficult to determine if a subsidiary company is a controlled group under the law; however, if your company exerts any kind of majority ownership of a company’s stock, then it is likely that the latter company will be considered a controlled group under the law.
Due to the threat of IRS penalties for not being fully ACA-compliant, it’s highly advisable to have your legal and accounting teams review how your ownership of subsidiary companies is structured to see if it’s necessary to offer healthcare plans to eligible full-time employees.
The complexity of the situation means that healthcare plans are just the beginning of achieving compliance; in practice, there may be many more regulations and requirements that must be considered in order to fully attain ACA compliance and thus avoid heavy penalties from the IRS and Department of Labor.
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Categorized in: ACA