Whether an employer is part of a larger group changes how its employees are counted.
Related companies can be combined when counting employees for the employer mandate. A center, shop or branch that is independent in daily life may still be part of a larger employer for these rules.
What to confirm about the count.
Common Ownership
Companies under common ownership may be treated as one employer for counting.
Count Full-Time Equivalents
Count full-time employees plus the full-time equivalent of part-time hours.
The 50 Threshold
At 50 or more full-time equivalent employees an employer is a larger employer for the mandate.
Affects Affordability
Larger employers face penalties if coverage is not affordable. Smaller employers do not.
Franchises
Franchisees are generally separate employers unless ownership links them. Confirm with counsel.
Document the Structure
Keep a chart of entities and owners. Counsel needs it to confirm the count.
Two Different Counts for Two Different Rules
Shared ownership changes one count and not the other. For the ICHRA class rules the employer is the common-law employer. For the large employer test, related companies are added together.
Which rule counts what
| Question | Governing rule | Related companies combined? |
|---|---|---|
| Which employees belong to which ICHRA class, and who receives the allowance | 26 CFR 54.9802-4(d) | No. The plan sponsor is the common-law employer, and related entities are not treated as one employer |
| Is the employer an applicable large employer | 26 CFR 54.4980H-1(a)(4) and (a)(16) | Yes. Entities treated as one employer under Internal Revenue Code sections 414(b), (c), (m) and (o) are counted together |
| Is the class large enough when a group plan goes to one class and an ICHRA to another | 26 CFR 54.9802-4(d)(3) | The test counts employees of the plan sponsor offered the ICHRA on the first day of the plan year |
Sources: 26 CFR 54.9802-4 and 26 CFR 54.4980H-1.
How the large employer count works
A full-time employee averages at least 30 hours of service a week, or 130 hours in a calendar month. For each month, the hours of the employees who are not full-time are added, with each employee capped at 120 hours, and the total is divided by 120 to produce full-time equivalents. An employer whose average monthly count of full-time employees plus equivalents over the prior year is 50 or more is an applicable large employer. Hours of service include paid time off, and exclude bona fide volunteer hours and Federal Work-Study. Sole proprietors, partners and 2-percent S corporation shareholders are not counted as common-law employees.
Sources: 26 CFR 54.4980H-1(a)(15), (a)(21) and (a)(24), and 26 CFR 54.4980H-2(b) and (c).
An illustration with two related companies
| Company A | Company B | Combined | |
|---|---|---|---|
| Full-time employees | 30 | 20 | 50 |
| Part-time employees, average hours a month | 6 at 80 hours | None | 6 at 80 hours |
| Full-time equivalents | 480 divided by 120 is 4 | 0 | 4 |
| Count for the large employer test | 34 | 20 | 54 |
Illustrative. Neither company is an applicable large employer on its own. Together, with common ownership that meets the section 414 tests, they are. Each company still defines its own ICHRA classes as the common-law employer of its own staff. Whether the entities are a controlled group is a question for the company’s tax counsel.
Minimum class size when a group plan stays in place
The minimum class size rule applies only when a traditional group plan is offered to one class and an ICHRA to another. It is measured by the number of employees offered the ICHRA on the first day of the plan year, not by who enrolls.
| Employees of the plan sponsor | Minimum class size |
|---|---|
| Fewer than 100 | 10 |
| 100 to 200 | 10 percent of total employees, rounded down |
| More than 200 | 20 |
For a sponsor with 150 employees the minimum is 15. Source: 26 CFR 54.9802-4(d)(3).
The questions employers ask about counting employees.
What counts as one employer?
Related companies can be combined under the controlled group rules. Counsel should review the structure.
How are part-time employees counted?
Their hours are converted into full-time equivalents for the count.
Why does 50 matter?
At 50 or more full-time equivalent employees an employer is a larger employer under the mandate.
Do franchisees count together?
Generally not, unless ownership links them. Confirm with counsel.
Does a center that is part of a group count the group?
It can, if the entities are related. Counsel should confirm.
Does the count change?
Yes. It moves with headcount, so recheck it each year.
Who does the count?
Your counsel and tax advisor confirm it, and we coordinate the headcount data.
General information about individual coverage HRAs, not legal or tax advice. Plan-specific questions belong with ERISA counsel and your tax advisor, and we will bring them in.
Where these details come from.
This page summarizes public guidance reviewed in October 2026. Rules change, so confirm current requirements with counsel.
CMS: Individual Coverage HRAs →
U.S. Department of Labor: Employee Benefits Security Administration →
More ICHRA questions and the industries they affect.
Owners and Partners
Eligibility and tax treatment questions.
Employee or Contractor
Who is eligible for an allowance.
Affordability by Class
Test the ACA affordability rule class by class.
ICHRA for Real Estate and Property Management
Agents, managers and on-site staff.
ICHRA for Professional Services
Partners, associates and support staff.
ICHRA for Local Service Businesses
Small crews across many trades.
Benefits for ESOP and Employee-Owned Companies
How benefits work at an employee-owned company with an ESOP.
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