Small Employers

Employer Shared Responsibility Provision

Starting January 1, 2015, the ACA’s Employer Shared Responsibility provision takes effect. There are two parts:

  • Employer Reporting Requirement: Under IRC § 6056, employers must report information about health coverage offered to full-time employees. To comply with the reporting requirement, prepare and distribute Form 1095-C to the employee and file a copy with the IRS. For calendar year 2015, the first reports are due in early 2016.
  • Employer Coverage Offer (often called “the Employer Mandate” and “Play or Pay”): Employers may be assessed a penalty for failure to offer health coverage to full-time employees if at least one employee receives a government subsidy to buy individual coverage through an Exchange (Marketplace).

Important: Most small employers are exempt. Employers that employed an average of fewer than 50 full-time employees (including full-time-equivalent (FTE) employees) in a calendar year are exempt from both parts of the Employer Shared Responsibility provision for the following calendar year.2

For instance, the employer’s average number of employees in 2014 determines whether the employer is exempt for 2015. Then the average number of employees in 2015 will determine whether the employer is exempt for 2016. Related employers in a controlled group are counted together to determine the number of employees. Generally, each full-time employee (i.e., 120 hours of service or more per month) counts as one FTE. Each part-time employee counts as a fraction of one FTE (i.e., divide the employee’s hours of service per month by 120). Employers with seasonal workers, usually in the agricultural or retail industries, may be able to take advantage of a special rule to subtract the seasonal workers from the employer’s FTE count.

Starting with Basics

Employers that offer health care coverage to employees are responsible for complying with many of the provisions of the Affordable Care Act (ACA). Most health reform changes apply regardless of the employer’s size, but some changes apply only to small employers and other changes apply only to large employers. Even employers that do not offer any coverage need to comply with certain requirements to distribute notices to workers or submit reports to federal agencies.

The effective dates of most ACA provisions usually are based on the employer’s group health “plan year” starting date. Other items take effect on a specific calendar date. Further, whether or not a provision applies often depends on the employer’s size or on the type of group policy.

“Small Employer” generally means an organization (including subsidiaries) with fewer than 50 full-time and full-time-equivalent employees.

  • Employer Notice about Health Insurance Exchanges (Marketplaces)— Employers must provide a written notice to all full-time and part-time employees, whether or not benefits eligible, within 14 days of hire. The federal notice explains the availability of the Health Insurance Exchanges (Marketplaces) and the circumstances under which employees may be eligible for subsidies to buy coverage through an Exchange.

This requirement applies to all employers covered by the Fair Labor Standards Act (FLSA), including employers that do not offer health coverage.

Employers can satisfy the Employer Exchange Notice requirement by using one of the following DOL model notices, filling in the blank sections as needed, and distributing the completed notice to all employees within 14 days of hire:

  • Employers who currently offer health insurance to any or all employees can use this notice:

  • Employers who do not offer health insurance to any employees can use this notice:

  • Summary of Benefits and Coverage (SBC)— Health insurers, and employers with self-funded health plans, must provide an SBC for each plan describing its benefits and coverage using a standardized format. ACA regulations require that the SBC be provided in several instances (by the first day of open enrollment, by the first day of coverage if there are any changes, upon special enrollment events, upon request, and prior to off-renewal changes). The DOL provides samples and instructions at

  • Grandfathered Plan Notice— Employers with a grandfathered plan must review it to confirm that it still qualifies for grandfathered status. If so, materials describing the plan’s benefits must include a notice regarding the plan’s status as a grandfathered plan. The notice must include contact information for questions or complaints. Note that plans that lose grandfathered status immediately become subject to the same health reform requirements as nongrandfathered plans.
  • Patient Protection Notice— Nongrandfathered health plans must include a notice regarding each participant’s right to designate a primary care physician and to obtain obstetrical or gynecological care without prior authorization.
  • W-2 Reporting of Employee Health Coverage Cost— Employers must report the total cost of each employee’s health coverage on Form W-2 (box 12). This item is informational only and has no tax consequences. The requirement does not apply to employers that filed fewer than 250 Forms W-2 for the prior tax year.
  • Small Business Tax Credit (Optional)— Employers with fewer than 25 employees should check whether they qualify for the Small Business Tax Credit to help with the expense of offering health coverage to employees. Starting with tax year 2014, the credit is available to small businesses that meet various criteria and purchase a certified Small Business Health Options Program (SHOP) plan. For information, see