Controlled Groups and Related Entities
Companies with common ownership or that are considered part of a controlled group under certain IRS rules would be considered one employer in determining ALE status. This is often referred to as a related entity. Related entities qualify as “controlled groups” for the purposes of ACA. A company, or more than one company, may join Justworks as a ‘related entity' or 'controlled group’. The definition of a controlled group is stricter than related entities. All controlled groups are related entities for the purpose of worker’s compensation and health insurance. Not all related entities are controlled groups. The ERM-14 document is helpful when reviewing ownership.
PARENT-SUBSIDIARY
- A parent company has a controlling interest (owns at least 80%) of a subsidiary company.
- A parent company can have multiple subsidiaries, and there can be multiple tiers of ownership entities (a parent can control a subsidiary, which in turn can control other companies).
BROTHER-SISTER GROUP:
- A group of the same five or fewer people own a combined controlling interest (own 80% or more) in each company.
- The same group of five or fewer people have effective control (total ownership percentage is at least 50%) of each company. See chart below
- Record the ownership percentage of each person in the group across all companies.
- Determine each person’s lowest ownership percentage across all of the companies, which is called the identical ownership percentage.
- Add up the identical ownership percentages. If the amount is 50% or more, this criterion is satisfied.
Person |
Company A |
Company B |
Identical Ownership |
Cathy |
25% |
10% |
10% |
Benny |
10% |
25% |
10% |
Jorge |
20% |
10% |
10% |
Lana |
20% |
50% |
20% |
Priyanka |
25% |
5% |
5% |
Total |
100% (exceeds 80%) |
100% (exceeds 80%) |
55% (exceeds 50%) |
*Company A and B may constitute a brother-sister group.
COMBINED / CONTROLLED GROUPS
- Three or more companies that are each members of a parent-subsidiary or brother-sister group.
- At least one of the companies must be both the common parent of a parent-subsidiary group as well as a member of a brother-sister group.
For example:
Wanda is a person who owns 80% of Company A and 85% of Company B. She has controlling interest in each of the two companies and effective control. Therefore, Company A and Company B are in a brother-sister group.
Company A also owns 90% of Company C. This makes Company A the parent of a subsidiary, Company C.
Company A is a parent of Company C, and Company A is also a member of a brother-sister group with Company B. Therefore, Company A, Company B, and Company C are in a combined group.
Applicable Large Employers
Applicable Large Employers or “ALEs” are companies with 50 or more full-time employees or equivalents according to this calculation. Even if your company does not meet the ALE criteria on its own, if it’s part of a group that combined would be considered an ALE, your company may be considered an ALE member required to meet the ACA filing requirements.
If your company is part of one of the types of groups below you are considered a related entity or control group, and you must consider the total number of full-time (including full-time equivalent) employees across the entire group during the previous calendar year to determine whether your company, in its relation to other companies, is an ALE member.
- Parent-subsidiary controlled group
- Brother-sister controlled group
- Combined / controlled group
Related entities qualify as “controlled groups” for the purposes of ACA under two categories:
- Parent-subsidiary controlled group
- Brother-sister controlled group
Learn more about related entities and how to determine your ALE status.
Health Insurance for Controlled Groups & Related Entities
Companies that are controlled groups and being quoted at the same time and onboard on the same medical effective date will be quoted together. This means that the companies will have the same rates and plans, and go through health insurance renewals together. Additionally, these groups may meet the participation requirement (50% of all benefits-eligible employees) across all entities rather than on an individual basis.
Companies that are controlled groups but quoted at different times and onboarding separately will be quoted individually and will likely have different premiums until the Justworks renewal when they will be combined.
Companies that are related entities but do not have enough shared ownership to be considered a controlled group will be treated as different companies. They will not have the same premiums and the plans may differ. Each company will have to meet participation requirements.
Disclaimer
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.