Beyond cost savings: avoiding heavy penalties

March 08, 2016

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In a previous article, I looked at 10 areas where your business could save money.

One cost-saving measure I discussed was outsourcing certain tasks. In particular, I suggested using a Professional Employer Organization for payroll and benefits administration. By using benefit-pooling, a PEO can help to moderate those costs. I also wrote “You can have someone else take responsibility for the maze of changing HR regulatory issues including ACA (Affordable Care Act) compliance.”

Since that time, a major compliance issue has emerged from the ACA regarding control group monitoring. Here’s the issue, as explained to me by Rebecca Stewart of Texas-based Insperity.

Most of us in business are familiar with “50 full-time employees” rule under the Affordable Care Act. At 50 employees, ACA obligations kick in. Following the rules is absolutely crucial; noncompliance can result in heavy fines in addition to the remedial cost to get into compliance.   

Some entrepreneurial and middle-market businesses have fewer than 50 employees when they establish their company or business unit, only to later find out that there are other companies in their group or fund. This puts them in an aggregation of employees, and makes them responsible for following the protocols of being under one employer.

Investment funds, venture capital and private equity frequently encounter this challenge. Let's look at this in a little more detail. There are three types of controlled groups that are considered one employer for the purposes of the ACA employer mandate: 

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

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

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.

Noncompliance for these groups can result in hundreds of thousands of dollars in fines in addition to costs to get in compliance. These fees would dwarf any of the cost savings actions I had written about previously.    

I recommend you get a quick assessment from your PEO group and/or legal resource to determine whether you fall into any of these control account groups.  If not, you need to ensure that your business is in compliance with ACA reporting guidelines as quickly as possible to prevent costly penalties.

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Peter Duff

PDC Consulting

Peter is a seasoned financial and operational executive who is passionate about enabling  businesses to reach the next profit and cash generation level. He brings to consulting a broad experience of over 30 years as EVP, COO, and CFO roles in diverse consumer, industrial and technology businesses. Peter has been responsible for significant improvements in revenue, margins, expense as well as cash levels in manufacturing and service oriented businesses. He has a solid background in domestic and international settings with top 500 companies, middle market, start-ups and service operations. Peter is a trusted adviser to private equity and other fund managers.
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