At Bolton & Company, we often encounter smaller cannabis businesses who are not offering health coverage to their employees because they believe they are not considered an Applicable Large Employer (ALE).
They often also believe they are not subject to the employer shared responsibility (ESR) provision under the Affordable Care Act (ACA), which can be a costly misunderstanding.
The consequences of non-compliance can result in heavy fines and penalties. In fact, the Internal Revenue Service (IRS) has already started issuing penalty letters to employers that either didn’t file their ACA forms or, in worst case scenarios, didn’t file and didn’t offer affordable and minimum value coverage.
This article focuses on the topic of common ownership and how those rules might deem your organization an ALE that’s subject to the ACA “pay or play” mandate, which requires that groups with over 50 full-time equivalents offer affordable and minimum value coverage—or be subject to penalties.
These penalties are triggered when your employee goes to the exchange and receives a subsidy.
Companies that have a common owner or are related under certain rules of Section 414 of the Internal Revenue Code are generally combined and treated as a single employer for determine ALE status.
Let’s say you are an employer with 25 full-time employees. You are also part of a control group with two other employers who also have 25 full-time employees. In total, the control group has 75 full-time employees, making the control group—and all the employers within—an ALE.
Each organization in the control group would be subject to the pay or play mandate even if each organization doesn’t qualify as an ALE individually. Additionally, each employer must file their ACA forms each year.
The failure to file ACA forms with the IRS is a separate penalty under the law, and it would be in addition to any penalties incurred due to not offering coverage per the ACA mandates.
How to Determine If Your Employer Qualifies as An Applicable Large Employer
To determine if an employer qualifies as an ALE, follow the steps below:
- Identify all entities under common ownership
- Calculate the average size of each employer’s workforce during the prior calendar year.
- You can use an online calculator if you have part-time employees as each will count towards a full-time equivalent. Click this link to use the FTE Employee Calculator.
- Add the number of full-time equivalents using the sum of all entities/companies in the control group.
- Use this equation: company 1 + company 2 + company 3 = number of full-time equivalents for purposes of determining if each company is subject to ACA pay or play rules.
- If the answer to your equation is 50 full-time employees or more, each separate entity/company must offer medical insurance that is affordable and provides minimum value coverage in order to avoid penalties.
As noted in the steps above, average size is determined at the control group level. Therefore, when calculating the number of employees, be sure to include employees across all commonly owned business entities as described in Step 2.
Common Ownership According to the Affordable Care Act
According to the ACA, common ownership under section 414 of the Internal Revenue Code not only applies for tax purposes but for pay or play mandates as well.
Companies with common ownership are treated as a single employer by aggregating all companies together. By law, these companies are combined to determine whether they employ at least 50 full-time employees including full-time equivalents.
If the total meets the threshold of 50 full-time employees (plus full-time equivalents), then each individual company is seen as an applicable large employer.
Each company, even if they individually do not meet the threshold, is subject to the ESR provisions and must provide medical insurance to avoid penalties issued by the IRS.
This same thought process is very common for business owners with regards to Workers’ Compensation. If there is a 51 percent owner or more with commonly owned entities, we are able to write a Workers’ Compensation policy to cover all aspects of the business.
If you have any questions regarding this article or anything related to health insurance for your employees, please feel free to send me an email or give me a call at (626) 788-4975.
If you have any questions regarding your business insurance, email Corey Tobin or call him at (626) 535-1480.
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