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Who is a Large Employer Under Obamacare? - September 2014

September 05, 2014

The Patient Protection and Affordable Care Act (the “Act” (frequently referred to in common parlance as “Obamacare”)) requires, among other things that all “large employers” provide qualified health coverage for all of their full-time employees or pay an annual penalty (known as the Employer Shared Responsibility).  A large employer is generally any employer with 50 or more full-time employees or full-time equivalents.  Full-time employees are those employees that work on average at least 30 hours per week. Full-time Equivalents ("FTE") are a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are counted as the equivalent of a full-time employee. FTEs are determined by aggregating the hours worked by non-full-time employees in a month and dividing by 120. If the total number of full-time employees and FTEs is equal to or greater than 50, then the employer is subject to the Employer Shared Responsibility requirements.

In order to prevent employers from dividing businesses into several smaller businesses to avoid the “50 full-time employees” rule, the Act also contains rules that require businesses with common ownership (as that concept is used in the statutes and regulations) to be treated as a single employer. The rules principally focus on groups of corporations that qualify to file consolidated tax returns, and commonly controlled businesses under ERISA. Under these rules, if two or more businesses are part of a controlled group of businesses or are members of an “affiliated service group”, then they are treated as a single employer for purposes of the Act. For groups of businesses with interrelated ownership and with a total of 50 or more full-time or FTE employees, the ownership structure must be evaluated against the tests detailed in the statute and regulations to determine if the businesses are aggregated under the Act.

Aggregation in Controlled Group Situations

A controlled group can be any of the following: (1) a parent-subsidiary controlled group, (2) a brother-sister controlled group, or (3) a combination of parent-subsidiary and brother-sister controlled groups. There are also rules for attribution of ownership between related individuals (spouses, parent-children, etc.), trusts and non-corporate entities which can complicate the analysis of these situations and lead to aggregation and classification as a “large employer” for purposes of the Act. 

Aggregation for Affiliated Service Groups

An affiliated service group is a combination of entities (incorporated or unincorporated) that is either a service or management-type group.  Essentially the focus is on both the level and nature of the business activities between the companies when certain common ownership conditions exist (in some cases any amount of common ownership can result in the companies being aggregated as an affiliated service group and in other situations there are minimum thresholds that must be passed before companies will be aggregated). In addition, the attribution rules that apply between owners of businesses under the affiliated service group rules are different from those used in controlled group situations and are generally more inclusive than those used for controlled group situations.


Analyzing the concept of a "large employer” for purposes of determining if a company is subject to the health insurance requirements of the Act can be a complex process and requires an analysis of not only the employment profile of the subject company but also of all potentially related companies. If you have questions about whether your company is subject to the Act or would like to discuss planning opportunities, please contact Pender & Coward's labor and employment or corporate teams.