The Affordable Care Act states companies with 50 or more full-time equivalent employees must provide minimum essential health coverage. Alternatively, those businesses with less that 50 workers are not obligated to administer insurance. But what about franchises or businesses in common ownership?
Section 4980H
Under the Internal Revenue Service's guidance, a business with common ownership, or an enterprise with multiple companies that are all under one leadership, are most often considered large employers. The branches or franchises are combined into one entity, meaning all workers are represented by one business, instead of multiple. To adhere to the ACA"s guidelines, employers with 50 or more employees combined over these separate franchises have to provide minimum essential coverage. MEC
Should these companies decide not to follow the IRS guidelines, businesses are at risk of paying a shared responsibility fee. However, the penalty is different for common ownership enterprises. If the consolidated total meets the threshold for mandatory health coverage, each individual company has to adhere to the shared responsibility stipulations. Basically, even businesses that separately do not employ 50 or more workers will have to provide health coverage to their employees or each franchise will be subject to a fine.
Controlled groups
If a business is commonly owned by more than one entity, it is important to determine whether the company is part of a controlled group. Businesses that are a part of a controlled group must provide MEC to full-time equivalent employees. There are three differentiations, according to the IRS:
- Parent-subsidiary: When one or more companies are connected through stock ownership with a common parent corporation/ Eighty percent of the stock of each company is owned by one or more of the corporations in the group and the common parent company owns 80 percent of at least one other company.
- Brother-sister: Two or more companies with five or fewer common owners who directly or indirectly own a controlling interest – at least 80 percent of each company – of each group and have effective control – more than 50 percent of the stock of each company.
- Combined group: Three or more corporations, each of which is a member of a group of corporations, including parent-subsidiary or brother-sister group.
Determining whether a company is part of a controlled group can be a tricky process. Human resources should consult a legal, tax or benefits consul.
The penalties
There are two types of shared responsibility payments. The penalty is incurred first, if applicable large employers didn't provide coverage to at least 95 percent of their workers and second, if any employee purchases health insurance through the IRS Marketplace and receives a tax credit for it. A worker may seek coverage aside from what their employer administers if the MEC offered is unaffordable, doesn't provide minimum value or the worker is not one of the 95 percent of full-time employees that is covered.
To be considered affordable, coverage can not cost more than 9.5 percent of the employee's household income. The penalty for not offering affordable coverage is usually equal to the number of full-time employees receiving subsidized insurance through an exchange multiplied by 1/12 of $3,000, according to the IRS
Firms with over 100 employees are required to be providing MEC to 70 percent of their employees at this time. By 2016, the IRS mandates 95 percent of workers should be covered by these bigger businesses or common ownerships. Franchises with 49 full-time employees or less across multiple locations or businesses are not required to provide health insurance to their employees.
Next steps for businesses
It is vital that large employers and their HR teams adhere to the ACA's regulations to avoid shared responsibility penalties. HR should consult with legal, tax or benefits consul to determine if the business is a part of a controlled gorup. HR should ensure 70 percent of full-time workers are fully covered under business health care plans in 2015. By 2016, companies should ensure 95 percent of their employees meet the coverage requirement. Lastly, if a fair amount of workers are receiving a tax credit for non-company health insurance, HR will need to take a closer look at the coverage plan to make sure it is affordable enough for employees entering the program.
Under the ACA's common ownership rule, franchises are a part of one larger entity, making them eligible for shared responsibility penalties if the parent company meets the threshold of 50 or more combined employees and doesn't provide MEC.
Triton HR's has vast experience helping small and mid-sized businesses identify their ACA obligations. guarding employers against large penalties. Utilizing state of the art HR/Payroll technology, alongside experienced employee benefits brokers, Triton HR offers assistance from start to finish for today's complex business environment and regulations.
