Mandate Resources

Resources for Employers Navigating the Mandate

This page provides detailed reference materials, external IRS resources and Covered California for Small Business support for employers reviewing their Affordable Care Act obligations. The information is based on IRS Employer Shared Responsibility provisions and is for informational purposes only. Visit the IRS guidance on employer shared responsibility provisions or contact a tax professional for guidance specific to your situation.

Am I required to offer health insurance?

Businesses with 50 or more full-time -equivalent employees are generally considered applicable large employers (ALEs) and may be required to offer health insurance to their full-time employees and their dependents.
ALEs include all employer types — private businesses, tax-exempt organizations and government entities. If your business qualifies as an ALE, you must offer insurance that meets minimum value and affordability standards, or you may owe an employer shared responsibility payment to the IRS.
If your business has fewer than 50 full-time equivalent employees, you are generally not required to offer health insurance. However, if you choose to offer insurance, it must comply with Affordable Care Act requirements. Small employers can still:

• Offer Affordable Care Act-compliant health benefits through Covered California for Small Business, which serves employers with 100 or fewer full-time-equivalent employees
• Access IRS resources specifically designed for small employers at IRS Affordable Care Act Tax Provisions for Small Employers

If your business is an applicable large employer, the insurance you offer must meet two standards — minimum value (the plan pays at least 60 percent of the total average cost of covered services) and affordability (the employee's premium does not exceed a set percentage of their household income, adjusted annually by the IRS). For the full list of standards, penalty trigger conditions, and how the employer shared responsibility payment is calculated, see the Employer Mandate page.
For guidance on annual IRS reporting requirements — including Forms 1095-C and 1094-C — see 1095 Forms and Reporting.

Who counts as a full-time employee?

A full-time employee is someone who works an average of at least 30 hours per week, or 130 hours per month, for a calendar month.

Full-Time-Equivalent Employees

Full-time-equivalent (FTE) employees are not simply a headcount. FTE status is a calculation that combines the hours of part-time employees to determine whether your business meets the applicable large employer threshold.
To calculate your FTE count:

1. 1.
   Add the total hours of service for all non-full-time employees for the month — but no more than 120 hours per employee.
2. 2.
   Divide that total by 120.
3. 3.
   Add the result to your number of full-time employees.

If the combined total averages 50 or more over the prior calendar year, your business may be an applicable large employer.
For step-by-step calculation guidance and worked examples, use the IRS Employer Shared Responsibility Provision Estimator.

Seasonal Workers and Seasonal Employees

The Affordable Care Act distinguishes between two types of seasonal workers — and the distinction matters for how you calculate your applicable large employer (ALE) status and determine whether individual workers are full-time employees.

Seasonal Worker

A seasonal worker performs labor on a seasonal basis as defined by the Department of Labor, such as retail staff hired exclusively for the holiday season. You may apply a reasonable, good-faith interpretation of this term.
Seasonal workers are relevant to the ALE determination — if your workforce exceeds 50 full-time-equivalent (FTE) employees only because of seasonal workers, and for no more than 120 days during the year, your business may not be considered an applicable large employer.

Seasonal Employee

A seasonal employee is someone hired into a position that is typically for six months or fewer, beginning at approximately the same time each year. Seasonal employees are relevant to the look-back measurement method — a way of determining over a prior measurement period whether a variable-hour or seasonal employee qualifies as full-time.
For IRS guidance on both distinctions, see IRS: Determining If an Employer Is an Applicable Large Employer

Do I owe a penalty?

As an applicable large employer, you may owe one of two possible employer shared responsibility payments — but never both at the same time.

If you do not offer insurance to at least 95 percent of your full-time employees and their dependents, you may owe a payment if at least one full-time employee receives a premium tax credit through Covered California or another marketplace.

If you offer insurance that does not meet minimum value or affordability standards, you may owe a payment for each full-time employee who receives a premium tax credit — but only because they rejected your offer and enrolled through a marketplace.

One important clarification: a full-time employee is not eligible for a premium tax credit through Covered California if you offer that employee insurance that is both affordable and meets minimum value — even if the employee declines your offer and enrolls through Covered California, Medicare or Medi-Cal instead. In that case, you do not owe a payment.
For full penalty calculations and reporting requirements, see the Employer Mandate page.

Dependents, Spouses and What You Must Offer

Dependents

If your business is an applicable large employer, you are required to offer insurance to your full-time employees and their dependents. A dependent is a child of an employee under age 26, including legally adopted children and children placed for adoption.

The following are not considered dependents for this purpose:

• Stepchildren
• Foster children
• Spouses

You are not required to pay any portion of the premium for dependent coverage — only to offer it.

Spouses

Spouses are not dependents under the Affordable Care Act employer mandate. You are not required to offer insurance to employees' spouses, and you are not liable for an employer shared responsibility payment solely because a spouse buys insurance through Covered California or another marketplace.

Employer Health Care Arrangements

Employers may offer health benefits through several types of arrangements in addition to or instead of a traditional group health insurance plan. The IRS has issued specific guidance on how each arrangement interacts with Affordable Care Act requirements. Review the materials and talk with your tax advisor or benefits consultant before setting up or changing these types of plans.

Cafeteria Plans (Section 125 Plans)

A cafeteria plan allows employees to choose from a menu of pre-tax benefits, such as health insurance, FSA contributions and dependent care. Employees generally cannot use pre-tax cafeteria plan contributions to buy individual health insurance through Covered California or another marketplace.
IRS Notice 2013-54 provides additional guidance on employee assistance programs (EAPs) and their interaction with Affordable Care Act market reform requirements. Employers offering EAPs should review this notice before setting up or changing their arrangement.
For guidance, see IRS FAQ on cafeteria plans

Health Reimbursement Arrangements (HRAs)

An HRA is an employer-funded account that reimburses employees for qualified medical expenses. The IRS has issued guidance on how HRAs interact with Affordable Care Act market reform requirements. For details, see IRS guidance on HRAs

Health Flexible Spending Accounts (FSAs)

A health FSA allows employees to set aside pre-tax dollars for qualified medical expenses. For guidance on FSA rules and Affordable Care Act interactions, see IRS Publication 969

Find the Right IRS Resource for Your Task

The following IRS resources can help you understand your obligations, calculate your FTE count, estimate potential payments and find qualified tax professionals.