Affordable Care Act

The Basic Facts

Employers Subject to the Employer Mandate – “Play or Pay”

Applicable Large Employers with 100 or more FTEs are required to comply with the ACA starting January 1, 2015. Applicable Large Employers with 50 or more FTEs are required to comply with the ACA starting January 1, 2016. An “employer” is determined on a controlled-group basis. This means all employees of related entities must be aggregated to determine whether the employee threshold has been met. Entities can be related directly through an ownership chain, such as a parent company with one or more subsidiaries. Common ownership of multiple entities by small groups can also create a controlled group. The related entities within the Applicable Large Employer control group are known as Applicable Large Employer members.

1. Parent-Subsidy Group: When one or more businesses are connected through stock ownership with a common parent corporation (such as a chain); and

  • 80% of the stock of each corporation (except the common parent) is owned by one or more corporations in the group, and
  • Parent Corporation owns 80% of at least one other corporation.

2. Brother-Sister Group: A group of two or more corporations, where five or fewer common owners own directly or indirectly a “controlling interest” of each group and have “effective control”. A common owner must be an individual, a trust, or an estate.

  • Controlling interest: Generally defined as 80% or more of the stock of each corporation (but only if such common owner own stock in each corporation); and
  • Effective control: Generally defined as more than 50% ownership of the stock of each corporation, but only to the extent such stock ownership is identical for each corporation.

3. Combined Group: A group consisting of three or more organizations that are organized as follows:

  • 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 is also a member of a brother-sister group.

To summarize, if a business entity falls under one of these three types of controlled groups, then, for the purposes of the Employer Mandate, the entity is considered a single employer. Only 2% of the nation’s firms are considered mid-sized employers (50-99 FTEs), with another 2% defined as large employers (more than 100 FTEs). Companies with fewer than 50 FTEs, which make up 96% of businesses, are not subject to the Employer Mandate.