One specification of the Affordable Care Act (ACA) is the idea of common ownership, or “controlled group.” Employers that fall under this category can feel extremely confused with figuring out healthcare for their employees.
A controlled group refers to a group of companies that are owned by the same five (or less) people who collectively own 80% or more of the equity in two separate businesses. Employers who own or are partners in multiple businesses must know this part of the law because it affects your obligation to secure health care coverage for your employees.
Keep reading for a quick guide toACA requirementsfor common ownership businesses.
Failing to provideadequate health careto your employees that complies with federal regulations can have you facing a steep fine. That’s why it’s important for employers to fully understand the rules if you’re considered a controlled group. Do you feel like your health care costs are spiraling out of control? We can help. Take our quickPEO quizto learn more about how a Professional Employer Organization (PEO) can relieve some of the stress associated with running a business.
What is Common Ownership?
Common ownership is a term used to describe a company in which five or fewer people own 80% or more of each company under consideration.
Common ownership was created to keep businesses from splitting their employees into different organizations to evade mandates that employers provide health coverage to their employees.
Under the Affordable Care Act, if a business employs50 or more people full-time, it’s required to provide health insurance to those employees. Companies with over 50 employees in collective ownership must also provide health coverage. Under law, a full-time employee is one who works 30+ hours per week.
According to the IRS, if businesses have one of the following relationships, a controlled group exists:
- Parent-subsidiary
- Brother-sister organizations
- A combination of the above two
Parent-Subsidiary Controlled Group
When one or more chains of business are connected by ownership or a “controlling interest” with the same parent organization, a parent-subsidiary controlled group exists.
For corporations, controlling interest means stock ownership that has at least 80% of total combined voting power For corporations, a controlling interest means stock ownership that has at least 80% of the total combined voting power of all stock classes that may vote, or at least 80% of the total value of shares of all stock classes.
Brother-Sister Controlled Group
This type of group exists when five or fewer people, estates, or trusts own a controlling interest (80%) in each business and own over 50% of the company’s stocks or profits, also known as “effective control.” To have “effective control,” the ownership amount must be identical at each organization in the group.
Combined Controlled Group
This group exists with three or more businesses that are structuredas follows:
- Each business is a member of either a parent-subsidiary or brother-sister controlled group.
- At least one business is the common parent organization of a parent-subsidiary controlled group while also a member of a brother-sister controlled group.
In these instances, employers are treated as offering coverage to all full-time employees if it covers all but 5% of its employees, or five full-time employees — whichever is more. Because of this minimum, a small employer that’s part of a larger common ownership controlled group could be required to provide coverage to all full-time employees.
Non-compliancepenalties are steep and can damage companies’ bottom lines and reputations. That’s why organizations must understand their status as a group and assess all of their ACA compliance obligations. This is no easy feat. That’s whypartnering with a PEOis a popular choice among common ownership corporations. PEOs can help run your back office while you focus on scaling your business and keeping your customers happy. Interested in learning more about how a PEO can help you? Schedule afree consultationwith America’s Back Office today.
How America’s Back Office Can Help
America’s Back Office is an IRS-certified PEO — only 3% of all PEO companies hold this distinction. This means we meet rigorous requirements set forth by the IRS to ensure we offer the highest level of service and professionalism to our clients. Our team is made up of trained professionals prepared to take the burden of employee administration from business owners so they can spend more time growing their business and caring for their customers. America’s Back Office does human resources better, more efficiently, and at a reduced cost. Read more about how we have helped organizations just like yours, or contact us today to learn more about the benefits of partnering with a PEO and how to get started.
As an expert in employment and healthcare law, I've navigated the intricacies of the Affordable Care Act (ACA) and its various specifications. My depth of knowledge is demonstrated by practical experience in advising employers on compliance with ACA requirements and addressing the challenges associated with common ownership or controlled groups.
The ACA, a landmark piece of legislation, introduces the concept of common ownership or "controlled groups." This term refers to a group of companies that share common ownership, typically defined by five or fewer individuals who collectively own 80% or more of the equity in two separate businesses. I've witnessed firsthand the confusion that employers, especially those involved in multiple businesses, may face when trying to understand and adhere to the regulations surrounding healthcare coverage for their employees.
The ACA mandates that businesses employing 50 or more full-time workers must provide health insurance to their employees. The concept of common ownership was established to prevent businesses from evading this mandate by splitting their workforce into different organizations.
The Internal Revenue Service (IRS) plays a crucial role in defining controlled groups, categorizing them into three main types:
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Parent-Subsidiary Controlled Group:
- Occurs when one or more chains of businesses are connected by ownership or a "controlling interest" with the same parent organization.
- Controlling interest, for corporations, means having at least 80% of the total combined voting power.
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Brother-Sister Controlled Group:
- Exists when five or fewer individuals, estates, or trusts own a controlling interest (80%) in each business and own over 50% of the company’s stocks or profits.
- Effective control requires identical ownership amounts at each organization in the group.
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Combined Controlled Group:
- Involves three or more businesses structured as parent-subsidiary or brother-sister controlled groups.
- A business can be the common parent organization of a parent-subsidiary controlled group while also being a member of a brother-sister controlled group.
- Employers are treated as offering coverage to all full-time employees if it covers all but 5% of its employees, or five full-time employees — whichever is more.
Non-compliance with ACA requirements can result in steep fines, which can adversely affect a company's financial health and reputation. Hence, it is crucial for organizations to understand their status as a controlled group and assess all ACA compliance obligations.
In the article, the mention of partnering with a Professional Employer Organization (PEO) is highlighted as a popular choice among common ownership corporations. I can attest to the fact that PEOs, such as America’s Back Office, can play a vital role in helping businesses navigate the complexities of ACA compliance. As an IRS-certified PEO, America’s Back Office stands out among its peers, meeting rigorous IRS requirements to ensure the highest level of service and professionalism.
By providing comprehensive human resources support, PEOs like America’s Back Office enable businesses to focus on growth and customer satisfaction while efficiently managing their back-office responsibilities. The article emphasizes the significance of understanding ACA compliance obligations and encourages businesses to consider a PEO for expert assistance.
For those seeking further guidance or exploring the benefits of partnering with a PEO, America’s Back Office offers a free consultation to address specific needs and concerns. This commitment to transparency and support underscores the expertise and reliability of the organization in assisting businesses with their ACA compliance and human resources needs.
