Small Business Employee Benefits and HR Blog

FAQ: Does My Small Business Have to Provide Health Insurance?

February 4, 2016

As a small business owner, you may be asking, "Do I have to provide health insurance to employees?" No business has to offer health insurance. However, the Affordable Care Act includes a mandate for certain large employers (with over 50 full time equivalent employees) to either offer qualified and affordable health benefits, or pay a tax penalty. This is commonly referred to as the employer mandate, “play or pay” requirement, or employer shared responsibility.

Note: The employer mandate and penalty has been postponed to 2015 for large employers with 100+ FTE employees. The employer mandate and penalty has been delayed to 2016 for employers with 50-99 FTE employees.

It is important for your business to understand whether you are defined as an applicable large employer by the IRS, as the mandate and employer tax penalties only apply to your business if you are an applicable large employer. 

Less Than 50 Employees? No Mandate or Penalties

Calculate FTE

If your business has less than 50 employees, the mandate and tax penalty does not apply to you

What is an Applicable Large Employer?

For the majority of businesses this is a simple calculation. However, for businesses on the border with many part-time or seasonal employees, the calculation will be more in-depth. In general, if your business employed an average of 50 or more full-time equivalent (FTE) employees during the previous calendar year, you are considered an applicable large employer for the current year. 

First, a business is defined as an applicable large employer on a calendar-year basis. For example, you could be an applicable large employer in 2015, but not in 2014. Did your business employ 50 or more full-time employees on average during the preceding calendar year? If yes, then you are an applicable large employer for the current calendar year. 

Second, your business is NOT an applicable large employer if:

  • You employed less than 50 full-time employees on average during the previous calendar year, or

  • You employed more than 50 full-time employees no more than 120 days during the previous calendar year due to a seasonal workforce.

Calculating Full-Time and Part-Time FTEs

For the purposes of determining whether your business is an applicable large employer, your business must include all full-time employees plus the full-time equivalent of your part-time employees.

A full-time employee is defined as working on average at least 30 hours of service per week in a given month. How many full-time employees do you have?

Next, factor in part-time employees. To calculate the full-time equivalent of part-time employees, add the number of hours worked by part-time employees in a given month and divide the total by 120. How many full-time equivalent part-time employees do you have?

Finally, the sum of the full-time employees and the full-time equivalent of the part-time employees is the number used to determine whether your business is an applicable large employer. If the sum is 50 or over, you are an applicable large employer.

Worksheet: How to Calculate FTEs

Here is a worksheet outlining the above FTE calculations.


Now that you've determined if you're an applicable large employer, and you know if you "have" to offer health insurance in 2015... what's next?

Here are additional health care reform articles to help your business decide your health care reform strategy:

Editor's Note: This post was originally published in May 2013. 

What questions do you have? Let us know in the comments below. 

It's easier than you'd think for your small business to provide health insurance.
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