Many business owners believe the Affordable Care Act, or ACA, requires health insurance as soon as a company has 50 people on payroll. The rule is more complicated because full-time employees and part-time employee hours are counted differently.
A business can have fewer than 50 full-time employees and still be considered a large employer under the ACA because the hours worked by its part-time employees are combined.
Here is a simple explanation of how the rules work and what employers should do to avoid substantial penalties.
The ACA’s 50-Employee Rule
Under the ACA, an employer is generally considered an Applicable Large Employer, commonly called an ALE, when it averaged at least:
50 full-time employees, including full-time-equivalent employees, during the previous calendar year.
This means your 2026 employee count will generally determine whether your business is considered an Applicable Large Employer for 2027. The calculation is normally completed for each month and then averaged over the entire year.
Does having exactly 50 employees trigger the requirement?
Potentially, yes.
The rule applies when an employer averages 50 or more full-time and full-time-equivalent employees. However, simply counting the number of people receiving paychecks is not enough. You must separately calculate:
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Full-time employees
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Part-time employee hours
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Employees of commonly owned or related businesses
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Possible seasonal-worker exceptions
Businesses under common ownership may have to combine their employees when determining whether the 50-employee threshold has been reached.
What Is a Full-Time Employee?
For ACA purposes, an employee is generally considered full time when the employee averages:
At least 30 hours of service per week, or at least 130 hours of service during a calendar month.
This is important because many employers think an employee must work 40 hours per week to be considered full time. That may be the company’s normal definition, but it is not the ACA definition.
What Is a Part-Time Employee?
For this calculation, an employee who works fewer than 30 hours per week is generally treated as part time.
An Applicable Large Employer is not ordinarily required to offer health insurance to part-time employees solely to avoid the ACA employer penalty. However, the hours worked by part-time employees are still included when determining whether the business has reached the 50-employee threshold.
How Part-Time Employees Can Equal Full-Time Employees
The ACA combines part-time employee hours to create what are known as full-time-equivalent employees, or FTEs.
The basic monthly calculation is:
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Add together the hours worked by all employees who were not full time.
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Count no more than 120 hours for any one part-time employee.
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Divide the total by 120.
The answer is the company’s number of full-time-equivalent employees for that month.
Simple example
Assume a business has:
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45 full-time employees
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20 part-time employees
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Each part-time employee works 60 hours during the month
The part-time hours would be calculated as follows:
20 employees × 60 hours = 1,200 part-time hours
Then:
1,200 ÷ 120 = 10 full-time-equivalent employees
The business would therefore have:
45 full-time employees + 10 full-time equivalents = 55 employees for ACA purposes
Even though the business has only 45 employees working full-time schedules, it may be considered an Applicable Large Employer because the part-time hours bring the total to 55.
Does an Employer With 50 Employees Have to Offer Health Insurance?
An Applicable Large Employer is subject to the ACA’s employer shared-responsibility rules.
To avoid potential penalties, the employer generally must offer qualifying health insurance to at least 95% of its full-time employees and their eligible dependents. The coverage offered to employees must provide minimum value and be considered affordable under ACA rules.
In simple terms, the plan generally must:
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Be offered to at least 95% of full-time employees
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Be offered to eligible dependent children
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Cover a sufficient portion of expected medical expenses
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Keep the employee’s cost for employee-only coverage within the ACA affordability limit
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Be properly reported to the IRS
Employers should not assume that offering any health plan will satisfy the law. A plan may still create a penalty if it is too expensive for employees or does not provide the required minimum value.
Are Employers Required to Offer Coverage to Part-Time Employees?
Generally, no.
Part-time employees are included when determining whether a business is an Applicable Large Employer, but the employer generally does not have to offer them coverage to avoid the employer shared-responsibility penalty.
This is one of the most confusing parts of the law:
Part-time employees can cause a business to become subject to the ACA, even though the business may not be required to offer those part-time employees health insurance.
An employer may still choose to offer coverage to part-time employees.
Must Employers Offer Coverage to Dependents?
Applicable Large Employers generally must offer coverage to the dependent children of their full-time employees.
For this part of the ACA, an eligible dependent is generally an employee’s child who has not reached age 26. A spouse is not considered a dependent under the employer-mandate definition.
Does the employer have to pay for dependent coverage?
Generally, the federal employer-mandate rules require the employer to offer coverage to eligible dependent children, but they do not require the employer to pay the dependent’s premium.
For example, an employer may:
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Contribute toward the full-time employee’s premium
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Allow the employee to enroll eligible children
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Require the employee to pay the additional cost for dependent coverage
The employer’s contribution toward employee-only coverage must still be structured carefully so the employee’s coverage satisfies the ACA affordability rules.
What Are the ACA Penalties for 2027?
The IRS has announced higher employer shared-responsibility penalty amounts for 2027.
There are two main types of penalties.
Penalty 1: The employer does not offer coverage to at least 95% of full-time employees
For 2027, the penalty is generally:
$3,780 per year for each full-time employee, after excluding the first 30 full-time employees.
This penalty can apply when:
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The employer does not offer qualifying coverage to at least 95% of its full-time employees and their dependents, and
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At least one full-time employee purchases Marketplace coverage and receives a premium tax credit.
The penalty is calculated monthly, even though it is commonly stated as an annual amount.
Example
An employer has 100 full-time employees and does not offer qualifying coverage.
The simplified annual calculation would be:
100 employees − 30 employees = 70 employees
70 × $3,780 = $264,600
The employer could potentially face a penalty of approximately $264,600 for the year.
Part-time employees and full-time equivalents help determine whether the business is an Applicable Large Employer, but this particular penalty is generally calculated using the employer’s actual full-time employees.
Penalty 2: Coverage is offered, but it is unaffordable or does not provide minimum value
For 2027, the second penalty is generally:
$5,670 per year for each affected full-time employee who receives a Marketplace premium tax credit.
This can happen when the employer offers coverage but:
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The employee’s cost is too high under ACA affordability rules
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The plan does not provide minimum value
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The employee was among the group of full-time employees who did not receive an offer
This penalty applies only to the affected full-time employees and is capped so that it cannot exceed the amount the employer would have owed under the first penalty.
Offering Coverage Is Not Enough
Employers sometimes believe they are protected from penalties simply because they made a health plan available. That is not always true.
The offer must be properly structured. The employer should verify:
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Which employees qualify as full time
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Whether at least 95% of full-time employees receive an offer
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Whether dependent children are allowed to enroll
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Whether employee-only coverage is affordable
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Whether the plan provides minimum value
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Whether waiting periods are handled correctly
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Whether Forms 1094-C and 1095-C are completed accurately and on time
Applicable Large Employers generally have annual ACA reporting obligations using Forms 1094-C and 1095-C. These reports tell the IRS which employees were offered coverage and help the IRS determine whether a penalty may apply.
What About Businesses With Fewer Than 50 Employees?
A business averaging fewer than 50 full-time and full-time-equivalent employees is generally not subject to the federal ACA employer shared-responsibility penalty.
That means the federal ACA usually does not require the business to offer employee health insurance. However, many smaller employers voluntarily provide health benefits to:
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Recruit qualified employees
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Retain valuable staff
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Reduce employee turnover
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Improve employee satisfaction
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Compete with larger employers
Smaller employers may also have access to small-group health plans and, in certain situations, tax credits or other benefit arrangements.
Do Not Estimate Your Employee Count
Employers should not guess or underestimate the number of employees they have.
Businesses should carefully review:
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Payroll records
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Monthly hours worked
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Variable-hour employees
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Part-time employees
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Seasonal workers
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Employees at related companies
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Businesses under common ownership
A business with 40 or 45 full-time employees could still exceed the ACA threshold after part-time employee hours or related companies are included.
Waiting until the IRS sends a penalty notice may be too late to correct the coverage offered during the prior year.
Let Insurance Incorporated Review Your Options
ACA rules can be confusing, but selecting a group health plan does not have to be.
Insurance Incorporated can help employers:
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Determine whether they may be considered an Applicable Large Employer
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Compare small-group and large-group health insurance options
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Review employer contribution strategies
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Offer coverage to employees and eligible dependents
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Compare existing benefits and premiums
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Plan ahead to reduce the risk of ACA penalties
Before assuming your company is too small—or waiting until you receive an IRS penalty notice—have your employee count and health insurance options reviewed.
Call Insurance Incorporated at 877-898-9333 for a free group health insurance quote or comparison.
We can assist businesses with both small-group and large-group health insurance plans.
This article provides general information and is not intended as legal, tax, accounting or employee-benefits compliance advice. Employers should consult their tax professional, legal counsel or benefits adviser regarding their specific workforce and ACA obligations.
