The world of employee benefits, health care and health insurance can be confusing to navigate, particularly for small business owners. Nationwide, there are two main categories of health-related benefits: 1) The Patient Protection and Affordable Care Act, also known as Obamacare; and 2) everything else.
The Affordable Care Act
The Affordable Care Act (ACA) establishes regulations and sets up online health insurance marketplaces to help small businesses provide health insurance to their workers. The ACA imposes financial penalties if larger businesses don’t offer health insurance while smaller businesses enjoy substantial tax breaks for providing coverage.
When it comes to small business health insurance, size matters. The ACA distinguishes between four different sizes of employers:
- Fewer than 25 Employees
- 25 to 50 Employees
- More than 50 Employees
How do I count my employees under the ACA?
For the purposes of determining size and insurance obligations, employee number is based on “full time equivalent” employees, or FTEs. Employers calculate FTEs by adding the total number of full-time employees (30 or more hours per week) to the total part-time employee hours per week divided by 30.
- If your business has 25 full-time employees and any number of part-time employees who collectively work 300 hours per week:
25 employees + (300 hours per week ÷ 30) = 35 FTEs
Your business would fall in the 25 to 50 employee range.
Once you know your number of FTEs, you can determine what type of health insurance coverage the ACA requires of businesses your size.
The “Individual Mandate” of the ACA requires that self-employed individuals with no employees have basic health coverage, qualify for an exemption, or pay a fee on their federal income tax returns. With certain qualifications, the fee is the higher of 1% of yearly household income, or $95. Self-employed individuals can purchase health insurance from their state’s individual marketplaces, rather than the SHOP exchanges described below.
25 or Fewer Employees
Businesses with 25 or fewer employees can benefit from generous tax credits—25% to 50% of premium costs—for employee health insurance purchased through the Small Business Health Care Options Program, or SHOP. Small businesses with fewer than 50 employees do not face penalty fees if they do not offer health insurance.
Some of the other ACA requirements include:
- New Health Insurance Marketplace Notification
- 90-Day Maximum Waiting Period
If you offer health insurance, you must offer it to all eligible employees within 90 days of their start date.
- SBC (Summary of Benefits and Coverage) Disclosure
If you have a health plan, you must give employees a standard form detailing the plan and costs. Titled “Summary of Benefits and Coverage,” this form helps employees understand and evaluate their health insurance options.
25 to 50 Employees
Under the ACA, employers with 25 to 50 employees are treated similarly to businesses with fewer than 25 employees, though the eligible tax breaks aren’t quite as generous.
Businesses with 25 to 50 FTEs are subject to all of the requirements noted in the section above, including the New Health Insurance Marketplace Notification, 90-Day Waiting Period, and the SBC Disclosure, among others.
50 or More Employees
Though it applies to fewer than 4% of businesses, one of the more controversial sections of the ACA is called the Employer Shared Responsibility Provision, or the “Employer Mandate.” Businesses with 50 or more employees must offer health insurance to at least 95% of their full-time employees and dependents up to age 26. Failure to provide this level of coverage triggers a penalty fee.
These employers must also comply with the Health Insurance Marketplace Notification, 90-Day Maximum Waiting Period, and the SBC Disclosure required of smaller businesses.
Everything Else: Health-Related Benefits Outside the ACA
Most types of leave benefits, such as vacation, jury duty, personal and sick leave, are left to employer discretion and are not required by federal law. However, public employers and those with 50 or more employees must provide leave under the Family and Medical Leave Act (FMLA).
The Family and Medical Leave Act entitles eligible employees to job protection during up to 12 weeks of unpaid leave during any 12-month period, for any of the following reasons:
- Birth and care of the employee’s child, or placement of a child with the employee for adoption or foster care.
- Care of an immediate family member with a serious health condition.
- Care of the employee’s own serious health condition.
During FMLA leave, employers must maintain group health benefits as if the employee continued working.
Standards for workers compensation insurance vary greatly by state. Most states require that businesses with employees carry some type of workers compensation insurance, though there are frequently exceptions for sole proprietorships, business partners and limited liability corporations.
Some states and territories require that employers provide partial wage replacement insurance coverage to eligible employees for non-work related sickness or injury. These include: California, Hawaii, New Jersey, New York, Puerto Rico, and Rhode Island.
This list is not exhaustive and health-related benefits requirements vary depending on your particular situation. Consult an UpCounsel attorney familiar with small business health insurance and benefits to ensure full compliance.
U.S. Small Business Administration: Required Employee Benefits
U.S. Small Business Administration: Health Care
U.S. Department of Labor: Office of Workers Compensation