Employer Mandate

Employers with less than 50 employees are NOT subject to the “employer mandate.” Employers with less than 50 employees that do offer coverage must offer an ACA-compliant plan unless the plan is grandfathered.

The Affordable Care Act (ACA) requires an employer with 50 or more Full-Time Equivalent employees to offer health coverage to employees or will be subject to the Employer Shared Responsibility provisions under section 4980H of the Internal Revenue Code.

Under these provisions, such employers may be subject to an Employer Shared Responsibility payment in the following circumstances:

  1. Not providing minimum essential coverage to their full-time employees and dependents;
    OR
  2. Not providing coverage that is affordable and that provides minimum value.

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Although the requirements were effective beginning January 1, 2014, overall enforcement was delayed until January 1, 2015.

  • Coverage that would cost an employee more than 9.5 percent of their annual household income is considered unaffordable.
  • Three optional safe harbors exist to assist the employer in determining affordability:
    • Form W-2 wages safe harbor,
    • Rate of pay safe harbor,
    • Federal poverty line safe harbor.
  • A plan that covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan is considered to provide minimum value.
  • The HHS and the IRS have published various methods that may be utilized to determine minimum value.
  • A penalty may be triggered if at least one of an applicable large employer’s full-time employees receives a premium tax credit through the marketplace.
  • If no full-time employee receives a premium tax credit, the employer will not be subject to an employer shared responsibility payment.
  • If an applicable large employer does not offer coverage or offers coverage to fewer than 95% of its full-time employees (and their dependents), it owes an Employer Shared Responsibility payment equal to the number of full-time employees the employer employed for the year (minus up to 30) multiplied by $2,000, as long as at least one full-time employee receives the premium tax credit. (Note that for purposes of this calculation, a full-time employee does not include a full-time equivalent)1.
  • If no full-time employee receives a premium tax credit, the employer will not be subject to an employer shared responsibility payment1.

1 U.S. Internal Revenue Service. Employer Shared Responsibilities Provisions Under the Affordable Care Act. CareFirst accessed this information on September 29, 2014.

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This information is provided for informational purposes only and should not be relied on as legal or tax advice.