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COBRA and the Employee Count

Tuesday September 23rd 2014

There has been a lot of talk and confusion about employee count and determining employees for health care compliance. One area employers may not realize where the employee count matters is how it will affect COBRA.

For COBRA purposes, an employer needs to count all employees when determining the employee count. This will include not only the full-time employees, but part-time employees as well, regardless of whether or not the employee is covered by the group health plan. The part-time employees are counted as a fraction of a full-time employee. If an employer had 20 or more employees during the prior year and offered a group health plan for at least 50 percent of its typical business days during that year, the employer is subject to federal COBRA.

There are some exceptions to the employee count. Only common law employees should be counted. Employers will not need to include individuals in these positions as they are not considered common law employees:

  • Partners in a partnership
  • Self-employed
  • Independent contractors
  • Directors

For COBRA, an employer is determined on a controlled group basis, taking into account all U.S. and foreign entities. When determining the employee count, the employer must count the employees of foreign companies within the control group, even if they are not U.S. citizens.

The IRS has provided the following example in the final COBRA regulations:  A foreign company has a wholly owned U.S. subsidiary with only 12 U.S. employees. Taking into account the employees of the parent, the U.S. subsidiary is subject to COBRA.

Employers need to keep in mind that COBRA will apply to employees in:

  • The District of Columbia
  • Puerto Rico
  • U.S. Virgin Islands
  • American Samoa
  • Guam
  • Wake Island
  • The Panama Canal Zone

Any employer who sponsors a group health plan in any of the above jurisdictions and meets the 20 employee count is subject to the same COBRA requirements as companies in the 50 states.  Employers should not overlook common ownership in the equation.

Have you experienced difficulties with the 20 employee count? If so, could you share the issues you came up against?

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