Health Care Law Blog

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:”

1. parent-subsidiary groups (one business owns 80 percent or more of another business or businesses);
2. brother-sister groups (five or fewer common owners; the common owners must own at least 80 percent of each business; and the combined identical ownership must be 50 percent or more); and
3. combined ownership groups (each organization is a member of either a parent-subsidiary or brother-sister group and at least one corporation is: the common parent of a parent-subsidiary and a member of a brother-sister group).

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.