BUSINESS COMMON CONTROL ISSUE UNDER THE AFFORDABLE CARE ACT In general, the Patient Protection and Affordable

Care Act (the Affordable Care Act) requires individuals purchase health coverage. In addition employers are required to offer health coverage for their employees under certain circumstances or face penalties. Recently, President Obama delayed the start of the Affordable Care Act for big businesses with more than 50 full-time employees by one year. Beginning January 1, 2015, employers who employ an average of 50 full-time employees during the previous calendar year must offer health coverage which meets the minimum essential coverage requirements or pay a fine. There is an exception in the event an employer has more than 50 employees, but no employee receives a tax credit for health insurance. However, as soon as one employee receives the tax benefit (insurance subsidies) in an exchange, the employer will be required to pay a fine equal to $2,000 per full-time employee after exempting the first 30 full-time employee equivalents. The chart below illustrates this employer mandate and the penalty assessment:

Calculation of Full-Time Equivalent Employees. An employer is not considered an applicable large employer (and therefore is exempt from the mandate) if the employers workforce exceeds 50 full-time employees for 120 or fewer days during the calendar year and the employees in excess of 50 during that period were seasonal workers. A full-time employee is someone who is employed on average at least 30 hours per week. Part-time employees are taken into account as full-time equivalents for purposes of determining the 50 employee threshold (but not for penalty calculation purposes) by dividing the total number of hours worked by non-fulltime employees during the month by 120. The following is an illustration of calculating the full-time equivalent
Company A has 48 full-time employees, 3 part-time employees who work 20 hours a week and 3 part-time employees who work 10 hours per week.

In 2013, the 3 part-time, 20 hour-a-week employees work for an aggregate of 240 hours per month, and the 3 part-time 10 hour-a-week employees work for an aggregate of 120 hours per month. The total aggregate hours worked by non-full-time employees is 360.

The total aggregate hours of non-full-time employees, 360, is then divided by 120 to arrive at the number of full-time equivalent employees, 3.

Company A has 3 full-time equivalent employees for a total of 51 full-time employees (3+48), and is an applicable large employer subject to the Affordable Care Act's mandate of insurance coverage.

Companies under Common Control considered single employer. Employers need to be aware that certain affiliated companies or those under common control (as determined under Internal Revenue Code 414) are treated as a single employer for purposes of the Affordable Care Act mandate. This means that an employer must aggregate all full-time employees (and full-time equivalents) of businesses under common control to determine if the 50-employee threshold is met. One type of common control is common ownership. If two or more businesses have the same five (5) or fewer owners, collectively owning at least 80% of the shares or interest (either by vote or value), then those businesses are considered a single employer. Here are some examples of companies under common control:
A single entrepreneur owns 100% of 3 individual small business corporations (a restaurant, an auto parts supply store, and a technology consulting business). For purposes of the Affordable Care Act, the three businesses would be treated as a single employer because the same owner controls at least 80% of each. The full-time employees of all three would be added together to determine if the employer is above or below the small business (50 full-time employee) exemption threshold.

Two partners own 90% of Company X (an oil and gas exploration/development business, split 45%/45%) and 50% of Company Y (a real estate leasing business, split 25%/25%), Company X and Company Y would not be considered a single employer because Partner 1 and 2 only own 50% of Company Y. If the two partners also owned 80% of Company Z (a recycling business, split 40%/ 40%), Company X and Company Z would be considered a single employer. The full-time employees of Company X and Company Z would be added together similar to Item 1 above.

The rules for determining common control under the tax regulations as incorporated into the Affordable Care Act are very technical and intricate. Business owners should consult with their tax and legal advisers for interpretation of specific operational guidelines for their respective businesses.