26 CFR § 54.4980H-2
Section 54.4980H-2 explains how to decide whether you are an applicable large employer. It uses a monthly count of full-time employees plus full-time equivalents for the prior calendar year.
What it says and why it matters.
The Count
For each month, count employees with at least 130 hours of service, then add full-time equivalents from the hours of everyone else, capped at 120 hours per person and divided by 120. Average the twelve months.
The 50 Line
An average of 50 or more full-time employees including equivalents in the prior calendar year makes the employer an applicable large employer for the current year.
Aggregation and Seasonal Workers
Commonly owned entities are generally treated as one employer, and a seasonal-worker exception applies where the workforce exceeds 50 for 120 days or fewer in a year.
Primary source: 26 CFR § 54.4980H-2. General information, not legal advice.
A worked example.
A Controlled-Group Count
Two commonly owned companies employ 32 and 24 full-time employees, with part-time hours that add up to 6 equivalents.
What the Rule Produces
The group is treated as one employer, so the monthly count is 62 and the group is an applicable large employer. Each company is then responsible for offering coverage to its own full-time employees.
Four steps to apply it.
1. Identify the group
Find commonly owned entities.
2. Run each count
Compute each company’s numbers.
3. Combine them
Add the totals.
4. Assign responsibility
Each member offers coverage to its employees.
Where it goes wrong. Counting each company separately and concluding neither is large.
The questions that come up next.
Does the look-back method change this count?
No. Large-employer status is always counted monthly, whichever method you use for individual employees.
What if we grow past 50 this year?
Status for a year is based on the prior calendar year, so the obligation usually arrives the following year.
Do government entities follow the same rules?
The section has special rules for government entities and certain religious organizations. Review with counsel.
Do franchisees combine with the franchisor?
Usually not, but ownership matters. Review with counsel.
Is the controlled-group test the same as for retirement plans?
It uses related rules. Confirm with your tax advisor.
Plan-specific questions belong with ERISA counsel, and we will bring them in.
Related sources and guides.
26 CFR § 54.4980H-3
Section 54.
26 CFR § 54.4980H-4
Section 54.
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