If you’re a small business owner with employees, knowing the Affordable Care Act (ACA) rules is important so you know where you stand with the law. Employer rules under the ACA may seem complicated, but knowing the ins and outs of the rules that apply to you could be seriously beneficial to your business. We’ll explore the Affordable Care Act Employer Mandate and help you understand how this affects you and your responsibility to your employees.

Affordable Care Act Employer Mandate: The Basics

The Affordable Care Act (ACA), often referred to as the health care law, created the Small Business Health Options Program (SHOP) specifically for small employers—typically those with 1 to 50 full-time and full-time equivalent employees (FTEs)—who wish to offer health and dental insurance to their employees. Eligible employers can enroll in SHOP either directly through private insurance providers or via a SHOP-registered agent or broker. SHOP plans are usually the exclusive means for these employers to access the Small Business Health Care Tax Credit, which can help reduce the cost of premiums. Additionally, other aspects of the ACA may impact employers as well.

Here are a few things to keep in mind:

• Required reporting about the Marketplace to your employees: All employers are mandated to provide their employees with information about the Marketplace, regardless of whether they provide health insurance.
• 90-day maximum waiting period: When providing health insurance, employers must extend coverage to all qualifying employees as soon as they are eligible. Familiarize yourself with the IRS’s 90-day waiting period regulation.
• Summary of Benefits and Coverage (SBC) Disclosure Rules: Employers are required to provide a standardized “Summary of Benefits and Coverage” (SBC) form to employees, detailing the coverage and costs of their health plan to aid in understanding insurance options, with penalties for non-compliance.
• Flexible Spending Accounts (FSAs): Employees are limited by an IRS-set annual dollar cap on their contributions to FSAs, though this cap does not apply to employer contributions; options are available for carrying over unspent funds into the next plan year. Learn more from the IRS.
• Workplace Wellness Programs: The ACA increases incentives for workplace wellness programs, raising the maximum reward for programs contingent on meeting health standards to 30% of health coverage costs and 50% for programs aimed at reducing tobacco use.
• Employer Shared Responsibility Payment: Businesses with 50 or more full-time and equivalent employees may face a payment if they do not offer insurance meeting minimum standards.
• Reporting Information on Health Coverage: Employers with 50 or more full-time and equivalent employees, health insurance companies, and self-insuring employers of any size must report provided health coverage.
• Medical Loss Ratio Rebates: Insurance companies must spend at least 80% of premium dollars on medical care; those failing to meet this requirement must provide rebates to policyholders, with employers required to allocate these rebates properly.
• If You Already Offer Health Insurance to Your Employees: Employers not using SHOP to provide health insurance can continue with their current plans, though the Small Business Health Care Tax Credit is generally only available through offering a SHOP plan.

Tax Provisions

The Affordable Care Act includes tax provisions that impact employers, and the size of an employer’s workforce in the current year dictates whether they qualify as an applicable large employer (ALE) for the subsequent year. The criteria for different employer obligations under the law are based on the number of employees:

• Employers with 50 or more full-time employees, or full-time equivalent employees, are typically classified as ALEs.
• Those with fewer than 50 full-time employees, including full-time equivalent employees, do not meet the ALE criteria.

The employer shared responsibility provision under the Affordable Care Act Employer Mandate became officially effective in 2015. Under this provision, certain applicable large employers (ALEs) are subject to employer shared responsibility provisions. This means ALEs must offer affordable health coverage to employees, and the insurance must provide “minimum value” to employees and their dependents. As an ALE, if you do not provide such benefits to your employees, then you might have to pay an employer shared responsibility payment to the IRS.

Eligibility for the small business healthcare tax credit hinges on employers satisfying several criteria:

• They must pay at least 50% of their full-time employees’ premium costs.
• They should have fewer than 25 full-time equivalent employees.
• They need to pay an average annual wage per full-time equivalent employee of less than $53,000 as of the tax year 2017.
• They must obtain their health insurance coverage through the SHOP Marketplace.

	Fewer than 50 employees	50 or more employees (applicable large employers)
Information Reporting	Employers offering self-insured health coverage must annually file a return with the IRS detailing information for each covered employee and provide each individual with a statement containing the same information. If the coverage is provided through an insurance policy, the insurance issuer is responsible for filing the return and providing the statement.	ALEs are required to file information returns with the IRS detailing the health coverage offered and provide employees with a statement about their coverage. If an ALE offers self-insured coverage, the information return must also include details about the individuals covered.
Payments	Employers with fewer than 50 full-time or full-time equivalent employees are exempt from the employer shared responsibility requirements.	Generally, ALEs could face an employer shared responsibility payment if they fail to provide affordable coverage that meets minimum value to their full-time employees and dependents, and if any full-time employee receives a premium tax credit.
SHOP Eligibility	Employers can potentially purchase insurance via the Small Business Health Options Program (SHOP) Marketplace.	The ability of an Applicable Large Employer (ALE) to purchase insurance through the Small Business Health Options Program (SHOP) Marketplace varies based on the number of full-time employees, including full-time equivalent employees, and state-specific Marketplace rules: Exactly 50 Employees: ALEs with precisely 50 full-time employees, including equivalents, are eligible to use the SHOP Marketplace. Up to 100 Employees: In some states, the SHOP Marketplace is accessible to businesses with up to 100 full-time employees, including equivalents. ALEs should consult their state Department of Insurance or call the SHOP Call Center at 1-800-706-7893 to verify eligibility.

Affordable Care Act Employer Mandate: larger versus smaller companies

The Affordable Care Act employer mandate generally applies to employers with 50 or more full-time employees, according to the IRS. This means that in most cases, these businesses must offer health insurance to their employees, or make an employer shared responsibility payment to the IRS.

Although the Affordable Care Act employer requirements only apply to employers with 50 or more employees, small businesses with fewer than 50 employees are also encouraged to provide health care coverage for their employees.  

Small business employers can meet all or some of the Affordable Care Act requirements for employers as they see fit. Some examples of what small businesses can provide their employees include flexible spending accounts, workplace wellness programs, and ICHRA plans, which reimburse employees for their healthcare spending.

Small businesses who choose to provide coverage to their employees are not subject to the shared responsibility requirement, which means that small businesses have more flexibility in how much they cover for their employee health services.

If you do choose to offer health care to your small business employees, the plan must meet the standards of minimum essential coverage outlined by the Affordable Care Act.

The ACA Employer Mandate and small businesses

As a small business owner, in some sense you have more flexibility than companies deemed “large businesses” with 50 or more full-time employees. But there still are some employer rules under the ACA that any employer should be aware of. Listed below are a few rules that might affect how you go about offering insurance to your employees.

• You are required to report certain information about employees to the IRS, regardless of whether or not you’re offering insurance.
• You generally have a 90-day waiting period in which you can offer an employee health insurance. If you offer insurance to one full-time employee, it generally must be offered to every employee within 90 days of his or her date of hire.
• You must give employees information about the plans being offered, which is called the “Summary of Benefits and Coverage.”

To read more about how small businesses are affected by employer rules under the ACA, read this article.

More details on the Affordable Care Act Employer Mandate and providing insurance

• If dependents are included on an employee’s group plan, then the adult dependents must be allowed on the health insurance plan through the age of 26.
• When calculating how many full-time employees you have, you should also include full-time equivalent employees, according to the IRS. So a few part-time employees might add up to one full-time employee.
• Employees who have coverage under TRICARE or Veteran’s Administration do not count towards your tally of employees for ACA purposes.
• The Department of Labor defines seasonal workers as those who only work on a seasonal basis, and retail workers work only during holiday seasons. Whether they count towards your tally of employees will depend on how long they worked and how many hours.

ACA Employer Mandate penalties

Under the Affordable Care Act (ACA), applicable large employers (ALEs)—those with 50 or more full-time equivalent employees—must offer health insurance that meets affordability and minimum value standards. Failure to comply can result in substantial penalties:

1. No Coverage Penalty: If an ALE fails to offer health insurance to at least 95% of its full-time employees and their dependents, and any employee receives a premium tax credit for purchasing insurance through the ACA Marketplace, the employer faces a penalty. This is calculated by multiplying the total number of full-time employees (minus the first 30) by approximately $2,700 per employee annually.
2. Inadequate or Unaffordable Coverage Penalty: If the coverage offered is either not affordable or does not meet minimum standards, and if any full-time employee receives a premium tax credit, the penalty is about $4,060 annually for each affected employee.

Employers should regularly review their insurance offerings against ACA requirements to avoid these penalties and ensure compliance.

ACA Employer Mandate FAQs

How are employer shared responsibility payments calculated?

The payments that an employer must make to satisfy the minimum requirements are calculated per employee, depending on whether the employer offers minimum essential coverage. For employers not offering minimum essential coverage, the payments are $2,000 per year for each full-time employee, although the first 30 employees are not counted in this figure. For employers offering minimum essential coverage, the payments are $3,000 per year if at least one employee receives a health care subsidy. 

What are the consequences of the ACA employer mandate?

If an employer with more than 50 full-time employees fails to provide the minimum affordable health care coverage, they may be subject to fines. If no health insurance coverage is provided, an employer will be charged $2,570 a year per employee, minus the first 30 employees. If coverage is provided, but does not meet the minimum 60% threshold to be considered affordable, the fee will be the lesser of $3,860 per employee receiving a subsidy or $2,570 per employee, minus the first 30 employees.

By meeting the Affordable Care Act employer requirements, employers with more than 50 full-time employees can expect to spend less on health coverage than they might spend on fines for not meeting the requirements.

What states require employers to report their ACA information?

Employers with more than 50 full-time employees are required to report information about their employee health coverage to the IRS. The states that require employers to report on their coverage include New Jersey, California, Massachusetts, Vermont, Rhode Island, and the District of Columbia, although additional states are also beginning to require reporting.

Can eHealth help your business with the ACA Employer Mandate?

When it comes to small business health insurance, eHealth is ready to help you meet the Affordable Care Act requirements for employers. Regardless of the size of your business, meeting the Affordable Care Act employer mandate will provide value to your business and your employees. Working with eHealth can ensure that the necessary requirements are met, helping you to avoid fines, while minimizing your cost and maximizing the benefit to your employees. 

This article about the Affordable Care Act Employer Mandate is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.