Employers with 50 or more full time equivalent employees (“FTEs”) will be subject to a penalty tax for: (1) failing to offer health care coverage to all full time employees; ( 2) offering minimum essential coverage that is unaffordable; or (3) offering minimum essential coverage where the Plan pays less than 60% of cost. This is often referred to as the Employer Mandate of PPACA.
While large employers may think that subdividing into smaller companies may provide some relief from the Employer Mandate, PPACA and its regulations apply the IRS “controlled group” rules found in IRS Code § 414 (b) and 414(c). The controlled group rules essentially state that “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" are to be treated as employed by a single employer.
Generally, there are three types of “controlled groups:”
Accordingly, any of the organizations that are “controlled groups” are treated as a single employer under PPACA. Thus, an employer cannot simply divide its organization into separate organizations to avoid the Employer Mandate under PPACA.