It's one of the most common questions we get from business owners: "Am I required to offer health insurance?"
The answer depends on one number - how many full-time equivalent employees (FTEs) you have.
The ACA Employer Mandate: The Basics
The Affordable Care Act (ACA) requires "applicable large employers" (ALEs) to offer affordable health insurance to their full-time employees. An ALE is any employer with 50 or more full-time equivalent employees.
If you're an ALE and you don't offer qualifying coverage, you may owe an employer shared responsibility payment - commonly called the "ACA penalty."
If you have fewer than 50 FTEs, there is no federal requirement to offer health insurance. But that doesn't mean you shouldn't consider it.
How to Calculate Your FTEs
This is where it gets a little tricky. "Full-time equivalent" doesn't just mean full-time employees. Part-time hours count too.
Here's the calculation: count every employee who works 30 or more hours per week as one FTE. Then add up the monthly hours of all part-time employees (those working fewer than 30 hours) and divide by 120. The sum of your full-time employees plus your part-time FTE number gives you your total.
If you're near the 50-employee threshold, this calculation matters a lot. You should be tracking it monthly.
What Counts as "Affordable" Coverage
Under the ACA, the insurance you offer must meet two tests. First, it must provide minimum value - meaning the plan covers at least 60% of total allowed costs. Second, it must be affordable - meaning the employee's share of the premium for self-only coverage doesn't exceed a certain percentage of their household income (the IRS updates this threshold annually).
If your plan fails either test, you can still face penalties even though you technically offered coverage.
Penalties for Non-Compliance
There are two types of penalties. If you don't offer coverage at all and at least one full-time employee receives a premium tax credit through the marketplace, you could owe roughly $2,970 per full-time employee (minus the first 30) per year. If you do offer coverage but it's not affordable or doesn't meet minimum value, the penalty is about $4,460 per employee who actually receives a marketplace subsidy.
These numbers are adjusted annually for inflation. The actual hit can be substantial - for a 60-person company, the "no coverage" penalty could exceed $89,000 per year.
What If You're Under 50 Employees?
You're not required to offer health insurance. But here's what you should consider.
Attracting and retaining talent: Health benefits are consistently ranked as the most important benefit after salary. If your competitors offer health insurance and you don't, you're at a recruiting disadvantage.
Small business tax credits: If you have fewer than 25 FTEs and pay average annual wages below a certain threshold, you may qualify for the Small Business Health Care Tax Credit - up to 50% of premiums paid.
Group purchasing options: Small Business Health Options Program (SHOP) plans allow employers with 1-50 employees to purchase group health insurance, often at lower rates than individual plans.
Employee health and productivity: Insured employees are more likely to seek preventive care, stay healthier, and miss fewer workdays. The ROI on health benefits extends beyond the premium cost.
Getting Ahead of the Threshold
If you're at 40-45 employees and growing, start planning now. The ACA reporting requirements (Forms 1094-C and 1095-C) are complex and must be filed annually. Many employers are caught off guard by the paperwork alone.
Working with an HR consultant or benefits broker to evaluate your options before you hit the threshold is significantly easier - and cheaper - than scrambling to comply after the fact.
Not Sure Where You Stand?
Whether you're under the threshold and exploring voluntary benefits or approaching 50 employees and preparing for the mandate, we can help you evaluate your options and build a plan that works for your business and your team.
mossconsulting.com/book-a-free-consultation
