Complying With Business Aggregation Rules For ACA’s Employer Mandate Could Be Complicated And Confusing

The House Small Business Committee recently examined the Patient Protection and Affordable Care Act’s (ACA) application of the business aggregation rules and the concerns they raise for small businesses at a December 4 hearing titled, The Health Care Law: The Effect of the Business Aggregation Rules on Small Employers. The Small Business Committee heard the testimony of concerned small business owners, examined the Administration’s process of determining whether businesses are considered single or multiple entities under the ACA, and heard suggestions on what changes to the rules could be considered to reduce confusion.

Background. The ACA requires businesses that employ 50 or more full-time or full-time equivalent employees (FTE) to offer health insurance to their full-time employees. A full-time employee with respect to any month is an employee who is employed on average at least 30 hours of service per week. An FTE is a part-time employee who works a total number of hours sufficient to be considered full-time.

Single employer. In addition to determining who is a full-time employee or an FTE, businesses may have to determine which employees are attributed to the business. The answer may be simple for one business with a single owner. However, when an individual shares ownership of multiple entities or with multiple owners, some of them family members, the answer is less clear. The ACA provides that all persons treated as a single employer under the business aggregation rules of the Internal Revenue Code shall be treated as one employer. A proposed rule on the employer mandate provides that all entities owned by an individual be treated as a single employer.

“Small businesses need to know exactly what they have to do to comply with the health care law, and what it is going to cost,” said Rep. Chris Collins (R-NY), chairman of the Subcommittee on Health and Technology. “Even at this late date, too many small businesses still do not have those facts. In particular, the business aggregation rules cause uncertainty among small businesses. The rules can be complicated and confusing, and small businesses need better answers and they need them quickly.”

Suggested changes. Hearing witnesses agreed that business aggregation rules are unfamiliar to small businesses and compliance with them would be difficult. Deborah Walker, CPA, national director of compensation and benefits at Cherry Bekaert, LLP, suggested that a facts-and-circumstances test could be used instead of the business aggregation rules. “With a facts-and-circumstances test, the employer will be able to determine whether the 50 full time equivalent test is met and which employees need to be covered without having to know detailed ownership information of investors and related parties, and without the cost of having to hire expensive outside consultants,” according to Walker’s written testimony.

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