If your business has fewer than 20 employees, you may qualify for COBRA’s small employer exception—but only if you count employees correctly. Missteps can lead to penalties and unexpected COBRA obligations.
Who Should You Count?
- All Employees, Not Just Plan Participants
Include everyone working for all employers maintaining the plan. - Only Common-Law Employees
Exclude independent contractors and board members unless they meet IRS common-law criteria. - Part-Time Employees as Fractions
Count based on hours worked compared to full-time status. - Employees of Related Entities
Controlled group rules require counting employees of related companies and successors. - Employees Outside the U.S.
Foreign entities and overseas employees count if part of the controlled group.
Why It Matters
Incorrectly applying the exception can result in lawsuits, penalties, and COBRA coverage obligations. When in doubt, consult a benefits expert.
Tip: Use a consistent counting method for the entire year and verify controlled group relationships.
Source: Thomson Reuters