You asked: “What percentage of ownership classifies an entrepreneur as owning multiple businesses for purposes of “pay or play”? Also…What are the guidelines on ownership as per IRS guidelines? What if we have six shareholders, are we still covered under ACA?”
Generally, the “Pay or Play” rules under Affordable Care Act (ACA) apply to all large employers, including private, public, non-profit and church employers who employ an average of at least 50 full-time employees on business days during the preceding calendar year. However the ACA rules state that when determining if employers are subject, they must count not only their own full-time workers but also full-time equivalent (FTE) employees (such as part-time workers) and all employees within the company’s control. Here are additional circumstances where an employer can also be subject to the Pay or Play Rule if the “controlled group” rules come into play:
The IRS “controlled group” rules found in IRS Code § 414 (b) and 414(c) which apply to such things as retirement plan participation also apply to ACA. This means that if the employer is part of a “controlled group” and the total full-time employees (or FTE employees) of the controlled group equals 50, then each of the entities within the controlled group are subject to ACA.
The IRS is the authority who defines the controlled group rules and they apply to “all employees of all corporations which are members of a controlled group of corporations” and “all employees of trade[s] or business[es] (whether or not incorporated) which are under common control.” There are three types of controlled groups:
Parent-subsidiary control group exists when one company owns 80% or more of another business or businesses;
Brother-sister control group occurs when five (5) or fewer individuals own 80% or more of two or more companies. This is common in many closely-held or family businesses; and
Combined ownership group exists when there are more than five owners and each organization is a member of either a parent-subsidiary or brother-sister group and at least one corporation is the common parent of a parent-subsidiary and a member of a brother-sister group.
If your organization falls into a situation where the full-time or FTE employee count combined with other organizations under the same control is over 50, then you are subject to “pay or play.” Keep in mind, though, that each organization would be treated individually when it comes to penalties. For example, if Lil’ Tots, Inc. owns six daycares and they are all considered a single control group, each separate day care can still design and administer its own health coverage plan for their own employees. Also, if five of those six Lil’ Tots daycares offer affordable/minimum healthcare coverage but one decides not to offer any coverage to its full-time employees, then only the delinquent daycare would be subject to penalties (not the entire group).
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