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Does my California Small Business have to offer health insurance?

Great question!  With the launch of the 2013 ‘Affordable Care Act’ employers across California are asking themselves the same thing.  You may have heard there is an employer mandate to offer coverage as part of the law... but who does it apply to?


The answer is that some companies will have to offer health insurance but others will not based on the company size, type of employees (full time vs. part time) and hours their employees work.

Does company size matter when buying California small business health insurance?


The requirement to mandate employer sponsored coverage to employees applies to groups which employ 50+ full time equivalent employees.  That’s right, if you have under 50 full time equivalent employees you are off the hook and do not have to offer your employees health insurance.


Since you are not required to offer small business health insurance coverage under the ACA/Obamacare, you will not face an  ’Employer Mandate’ penalty. (mandate to offer affordable coverage to employees)


As a California small businesses will need to calculate the number of Full time Employees or Full Time equivalents you have to ensure that you meet the ACA size requirements.


Here’s an easy way to calculate how many FTE’s you actually have:  FTE calculator


A.  How many full time employees do you have that work 30+hours per week

B.  Add up total hours all of your Part-time employees work per month and divide by 120 hours


      Add these two together to get the total = FTE for the Month (A+B)


 C. Total FTE for all months (add the total of each month for 12 months)

(if your employees hours vary each month do above steps for each month and total)

 D. Then divide the total in C by 12 = Average FTE per month


If you decide to offer health insurance coverage to your employees, the health insurance insurance coverage must comply with the ACA minimum benefit requirements.  Fortunately most plans on the market today from the major insurance carriers are ‘ACA Compliant.’


Otherwise the amount of penalties levied on Employers and IRS tax penalties on the individual citizens would be astronomical.


The technical term the government uses is “affordable coverage on a minimum value standard plan.”  Some examples of ACA Small Business health insurance requirements are: plans must cover ten essential health benefits, there can’t be a lifetime or annual benefit maximum, must adhere to the protections of consumers covered in the ACA.


Do I really need to bother counting the employees?


If your employee count is anywhere near 50 then undoubtedly.  It’s possible to have 40 full time employees and 15 part time employees and still come under the 50 ‘Full Time Equivalent’ employee count, so make sure you take a careful look at the rules calculating FTE’s on the IRS website to determine your company size each calendar year.


Doesn’t seem right?  Here’s how it works in this example:


Company has the following headcount:


-40 full time employees

-15 part time employees working 15 hours weekly each


The part time employees only result in 7 Full Time Equivalents (60 hours monthly * 15 employees= 225 hours * 4 weeks per mo. =900/120= 7 Full Time Equivalents


Total ‘Full Time Equivalent’ Count is 47!


This company does NOT have to offer coverage to their employees per ACA Employer Mandate rules.

Here’s a great tool the IRS provides called the ‘Estimator’ or Employer Shared Responsibility Provision Estimator, to be exact,  where you can simply and easily plug in the number of employees both full and part time per month to help determine your FTE count for a given tax year.


Who Shouldn’t Be Included in the  FTE Calculation?


-Owners of the business  (Sole Proprietors, 2% S Corp. Owners, etc..)

-Seasonal Employees working under 120 days

-Dependent Family Members of the Owners

-COBRA enrollees

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