FAQ: Does my small business have to provide health insurance?

Written by: Josh Miner
November 10, 2020 at 2:49 PM

As a small organization leader you may be asking, "Do I have to provide health insurance to employees?" The Affordable Care Act requires large employers—those 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, formally as the “employer shared responsibility provisions”.

It is important for your organization 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 organization if you are an applicable large employer.

Fewer than 50 employees? No mandate or penalties

If your organization has fewer than 50 full-time equivalent employees, the mandate and tax penalty does not apply to you. Even so, many employers use a health benefit as a key way to recruit and retain top talent.

What is an Applicable Large Employer?

For the majority of organizations, this is a simple calculation. However, for employers with many part-time or seasonal employees, the calculation is more in-depth. In general, if your organization 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.

Your organization is defined as an applicable large employer on a calendar year basis. For example, you could be an applicable large employer in 2021, but not in 2020. Did your organization 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.

Your organization is NOT an applicable large employer if:

  • You employed fewer 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 organization is an applicable large employer, your organization must include all full-time employees, plus the full-time equivalent of your part-time employees.

First, take the number of full-time employees you have. A full-time employee is defined as working on average at least 30 hours of service per week in a given month.

Next, take the “full-time equivalent” of your 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.

Finally, add the full-time employees and the full-time equivalent of the part-time employees. If the total 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 2021... what's next?

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

Not sure if your organization can afford group health insurance? Download our comparison chart to learn more about health reimbursement arrangements and how they compare with group health insurance.

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

This post was originally published in May 2013. It was last updated November 10, 2020.

Topics: Employer Mandate, Affordable Care Act, Glossary, Healthcare Reform, Applicable Large Employers

Additional Resources

Considering self-administering your QSEHRA? Find out what it takes.
Get our guide on how to offer health benefits with a small budget.