Many of the major provisions of the Affordable Care Act become effective next year, but planning should start now to ensure compliance. Clients have been calling with questions regarding whether they must offer health care coverage, what level of coverage they need to offer and the consequences of failing to offer coverage at all. Occasionally, clients have been surprised to learn that they qualify as an "applicable large employer" covered by the Affordable Care Act even though they only employ a handful of people. Consider the following.

Mom & Pop (M&P) company employs 35 employees. Mom and Pop own 100 percent of the company. Pop manages the day-to-day operations of M&P, but Mom was made an owner several years ago for "tax reasons." Thirty of M&P's employees regularly work 30 or more hours per week each month and the remaining five employees work an average of 20 hours per week.

The total number of full-time employees (30) and full-time equivalent employees (3) for M&P is 33, which is well below the 50 full-time employee threshold to be considered an applicable large employer under the Affordable Care Act. Mom, however, also runs a real estate business that Mom and Pop own equally. Home Sweet Homes employs 23 full-time employees, which also falls below the 50 full-time employee threshold.

Neither Mom nor Pop thought they were required to offer health care coverage to any of their employees. Fortunately, when M&P contacted Bricker on an unrelated matter, this information was discovered.

The Affordable Care Act provides that, for purposes of determining whether an employer is an "applicable large employer," all entities treated as under common control under Internal Revenue Code (IRC) sections 414(b), (c), (m) and (o) are treated as a single employer. Under IRC sections 414(b) and (c), a brother-sister group of businesses is under common control if five or fewer persons own 50 percent or more of the profits or capital interest of such businesses.

Because Mom and Pop own 50 percent or more of the profits or capital interests of M&P and Home Sweet Homes, the two businesses are considered to be a single employer for purposes of determining whether an employer is an applicable large employer. When combined, the 33 full-time employees of M&P and the 23 full-time employees of Home Sweet Homes exceed the 50-employee threshold. Thus, both employers will be viewed as an applicable large employer under the Affordable Care Act.

Both M&P and Home Sweet Homes will be required to offer health care coverage to their full-time employees. If either employer fails to offer its full-time employees coverage or the coverage offered is unaffordable or does not provide minimum value (and a full-time employee receives a tax credit or cost sharing reduction), the employer may be liable for substantial penalties.

M&P and Home Sweet Homes can take steps to avoid the health care coverage requirement, if they wish, but action must be taken prior to January 1, 2014.