Does a California Small Business Have to Provide Employee Health Insurance?

July 13, 2021

Your Company May Not Need to Provide Coverage. But You May Want to Anyway.

When California small business owners call one of our experienced group health insurance brokers, one of the first questions they often ask is whether they need to provide employee health insurance for their workforce. Whether to offer insurance proves an important question to ask, because if a company has a legal obligation to offer coverage to its employees and fails to do so, it faces hefty fines and other burdensome headaches.

Avoiding those fines is why you need to understand California’s small business employee health insurance requirements. And, even if your business is small enough that it doesn’t need to provide employee health coverage, there are several reasons other than the law why you may want to consider offering your employees a group health insurance plan.

50 Is the Magic Number

The fundamental issue that determines whether your company must offer employee health insurance is the number of employees on your payroll. If your business has less than 50 full-time employees or less than 50 “full-time equivalent” (FTE) employees, it has no obligation under the Affordable Care Act (ACA) or any other state or federal law to offer or provide employee health insurance.

A full-time employee for purposes of the ACA’s coverage requirements is one who works 30 hours or more each week or 130 hours each calendar month, including vacation and paid leave time.

Companies with less than 50 full-time employees may still need to provide coverage if they have 50 or more full-time equivalent employees. The ACA defines FTE as “a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee.”

That may sound confusing, but the law provides guidance on how to calculate your number of full-time-equivalent employees:

Combine the number of work hours of all non-full-time employees for each month but do not include more than 120 hours of service per employee, and
Divide that total by 120.

The IRS has some helpful guidance that explains in greater detail how to figure out whether your company falls above or below the 50 employee threshold and whether your business, therefore, must provide employee health insurance coverage.

If You Have More Than 50 Full-Time Employees, You Must Offer Them ACA-Compliant Coverage

If your business has 50 or more full-time or FTE employees as defined by the ACA, the state defines it as an “applicable large employer” (ALE). That designation means that your company must offer at least 95 percent of its full-time employees the opportunity to enroll in an employer-sponsored ACA-compliant group health insurance plan.

Even though almost all employee health insurance plans purchased through private insurers or the health insurance marketplace meet these requirements, it is important to confirm that the coverage you are considering complies with the ACA. Meeting with an experienced California small business health insurance broker provides the best way to ensure that your business complies with all of its obligations under the ACA.

Significant Penalties for Companies That Don’t Offer Employee Health Insurance Coverage if Required by the ACA

Applicable large employers that don’t offer ACA-compliant employee health insurance coverage should prepare themselves for a big financial hit. Under the ACA, a non-compliant business that fails to offer coverage to 95 percent of its full-time employees and their dependents faces a penalty of $2,700 (for 2021) per full-time employee minus the first 30 if any full-time employee obtains coverage on the exchange.

Why Your Company Should Consider Offering Employee Health Insurance Even if it Doesn’t Have To

Even if your business falls below the 50 full-time employee limit, you should seriously consider offering employee health insurance coverage to your full-time as well as your part-time employees. There are several tangible and intangible benefits of providing group coverage, including:

Attracting and retaining top talent
A healthier workforce with greater productivity and lower absenteeism due to illness or injury
Significant tax benefits and credits, such as small business healthcare tax credits of up to 50 percent of your premium expenses for any two-year period if your company qualifies.

Speak With One of Our California Small Business Health Insurance Brokers Today

Helping California small business owners navigate the complicated landscape of health insurance coverage is just one way that Preferred Insurance helps them ensure that their workers stay healthy and covered. As an experienced California small business and individual health insurance broker, we can answer your questions and provide practical, affordable coverage options for businesses of all kinds.

Call Preferred Insurance today to schedule your free consultation with one of our skilled brokers to discuss your small business health insurance needs.