Fall 2015 Issue of Horizons

HEALTHCARE

a partnership, 2-percent S Corporation shareholders, real estate agents and direct sellers, among others. If two or more companies have common ownership or are otherwise related, are they combined for purposes of determining applicable large employer status? Yes, if two or more companies have common ownership or are otherwise related, they are combined for purposes of determining applicable large employer status. Entities that are treated as a single employer include the following: ∙ Parent-subsidiary groups (80% ownership threshold) ∙ Brother-sister groups (five or fewer persons owning at least 50% of each entity) ∙ Groups consisting of corporations that are a combination of parent-subsidiary and brother-sister groups, trades or businesses (whether or not incorporated) that are under common control and affiliated service groups consisting of a service organization and another related organization that provides services to or with the first organization While employers that are part of a controlled group or an affiliated service group are treated as a single employer in order to determine applicable large employer status, penalties are determined separately and are assessed at the member company level. Who is considered a small employer and are small employers subject to the employer mandate? A small employer is an employer who employed fewer than 50 full-time employees, or FTEE’s, on average during the prior calendar year. Small employers are not subject to the employer mandate or penalties associated with non-compliance of this mandate.

Who is considered an applicable large employer? As previously stated, 2015 is a year of transitional relief. An applicable large employer is an employer who employed 100 or more full-time employees, or FTEE’s, on average during the year. Starting with calendar year 2016, employers with 50 or more full-time employees, or FTEE’s, are considered applicable large employers subject to the employer mandate and penalties for noncompliance. How does an employer determine if they had 50 or more full-time and full-time equivalent employees during the prior calendar year? The IRS defines a full-time employee as, “An employee who has on average at least 30 hours of service per week during the calendar month, or at least 130 hours of service during the calendar month.” The IRS also explains that the number of full-time equivalent employees for a month can be determined in these two steps, “1. Combine the number of hours of service of all non-full-time employees for a month but do not include more than 120 hours of service per employee, and 2. Divide the total by 120.” In order to determine a workforce size for a year, an employer takes the total number of full-time employees and FTEE’s for each month of the prior calendar year and divides that total by 12. While these calculations seem simple in practice, they become much more complicated when taking into effect fractional hours that have to be rounded to the nearest hundredth, layover hours, on-call hours, and seasonal workers, among other employer-specific issues. It is also important to note that certain individuals are not treated as employees and should not be included in the above calculation. These include independent contractors, sole proprietors, partners in

page 60 | horizons Fall 2015