Affordable Care Act (ACA) Requirements for Employers: A Compliance Guide

The Affordable Care Act (ACA) establishes specific requirements for employers regarding health insurance coverage, reporting, and compliance. Failure to comply with ACA regulations can result in significant penalties from the IRS and the Department of Labor (DOL).

This guide provides a comprehensive breakdown of ACA employer obligations, including coverage requirements, affordability standards, reporting duties, additional ACA compliance obligations, and deadlines.

The ACA Employer Mandate applies to Applicable Large Employers (ALEs), which are defined as:

• Employers with 50 or more full-time equivalent (FTE) employees in the previous calendar year.
• ALE status is determined annually by counting all full-time employees and part-time employees converted to FTEs.

Employers must accurately track their workforce size to determine their status and obligations under the ACA.

• Employers with fewer than 50 employees are not required to offer health insurance under the ACA.
• If a small employer self-insures its health plan, it must still file ACA reporting forms to document employee coverage.

• If you are an ALE, you must offer affordable, minimum value coverage and file the appropriate ACA reporting forms.
• If you are a non-ALE but self-insure, you still have ACA reporting requirements.

The ACA Employer Mandate requires ALEs to:

• Offer health insurance coverage to at least 95% of full-time employees and their dependents.
• Ensure that the coverage is affordable and meets the minimum value standard.

Failure to comply with these requirements may result in Employer Shared Responsibility Payments (ESRP)—commonly referred to as ACA employer penalties.

Under the ACA, employee coverage is considered affordable if the lowest-cost, self-only plan does not exceed 9.02% of the employee’s household income in 2025.

Since employers do not have access to employees’ household income, the IRS allows them to use one of three affordability safe harbors:

1. W-2 Safe Harbor – Premiums cannot exceed 9.02% of an employee’s W-2 wages.
2. Rate of Pay Safe Harbor – Premiums cannot exceed 9.02% of an employee’s hourly rate x 130 hours per month.
3. Federal Poverty Line Safe Harbor – Coverage is affordable if the employee’s contribution does not exceed 9.02% of the federal poverty level.

To meet minimum value, an employer’s health plan must:

• Cover at least 60% of total healthcare costs.
• Include substantial coverage for inpatient and physician services.

Insurance brokers can help confirm whether a health plan meets ACA minimum value standards and ensure the employer selects a compliant plan. However, tracking employee eligibility and ensuring compliance reporting is the sole responsibility of the employer.

If an employer fails to meet affordability or minimum value standards, employees may become eligible for subsidized coverage through the Health Insurance Marketplace, which can trigger penalties for the employer.

If an ALE does not offer coverage to at least 95% of full-time employees, and at least one employee receives a subsidy through the ACA marketplace, the employer faces a Penalty A fine.

Penalty Amount (2025):

• $2,900 per full-time employee, excluding the first 30 employees.

If an employer offers coverage but it is unaffordable or does not meet the minimum value standard, they may face a Penalty B fine.

Penalty Amount (2025):

• $4,350 per employee who receives subsidized coverage through the ACA Marketplace.

• Penalty A applies if no coverage is offered.
• Penalty B applies if the offered coverage is inadequate or unaffordable.

Employers must determine which employees are considered full-time under the ACA to ensure compliance.

• Full-time employees are those who work at least 30 hours per week (or 130 hours per month).
• Full-time equivalents (FTEs) count toward the 50-employee threshold but do not have to be offered coverage.

1. 40 full-time employees (working 30+ hours/week) = 40 FTEs.
2. 20 part-time employees (working 15 hours/week each) = 10 FTEs.
3. Total FTE count = 50 → Employer is an ALE and must offer coverage.

• Employers filing 10 or more ACA forms must e-file (new 2024 IRS rule).

• File and furnish forms as soon as possible to minimize penalties.
• The IRS may reduce penalties if filings are submitted within 30 days after the deadline.
• Employers who intentionally disregard ACA filing requirements face maximum penalties.

Yes, in addition to the Employer Mandate and ACA reporting requirements, employers have several other obligations under the Affordable Care Act (ACA) to remain compliant. Below is a breakdown of additional ACA requirements that employers should be aware of.

In addition to the Employer Mandate and ACA reporting requirements, employers have several other obligations under the Affordable Care Act (ACA) to remain compliant. Below is a breakdown of additional ACA requirements that employers should be aware of.

Employers that offer health plans must provide employees with a Summary of Benefits and Coverage (SBC).

• A standardized document that helps employees compare different health plan options.
• Includes details about covered benefits, cost-sharing, and exclusions.

• Distribute the SBC before enrollment in a health plan.
• Provide an SBC within 90 days of special enrollment due to life events (e.g., marriage, birth of a child).
• Notify employees at least 60 days in advance of any mid-year material plan changes that impact SBC content.

Key Takeaway:
Employers must ensure employees receive an accurate SBC on time and update the document when plan changes occur.

The ACA prohibits discrimination in health programs and benefits.

• Employers that receive federal funding for their health plans (e.g., Medicare, Medicaid).
• Any employer that provides health coverage must ensure that plans do not discriminate based on race, color, national origin, sex, age, or disability.

• Employers offering group health plans must ensure nondiscriminatory benefits.
• Employers subject to Section 1557 must provide language assistance services for employees with limited English proficiency.

Key Takeaway: Employers must review their health plans and benefit policies to ensure they comply with ACA nondiscrimination rules.

Employers offering group health plans cannot impose a waiting period longer than 90 days for employees to enroll in health coverage.

• Ensure that all eligible employees have access to health benefits within 90 days of hire.
• Applies to all group health plans, including fully insured and self-insured plans.

All employers subject to the Fair Labor Standards Act (FLSA) must provide a Marketplace Notice to new hires, regardless of whether they offer health insurance.

• Informs employees about health insurance options available on the ACA Marketplace.
• Explains whether the employer offers coverage that meets ACA affordability and minimum value standards.

• Provide the Marketplace Notice to new employees within 14 days of hire.
• Use the model notice provided by the Department of Labor (DOL), or customize it with company-specific information.

Key Takeaway: Employers must notify new hires of their right to obtain coverage on the ACA Marketplace, even if the employer offers health benefits.

Employers with self-insured health plans must pay an annual PCORI fee to help fund medical research.

• Employers offering self-funded health plans (including HRAs).
• Fully insured plans do not require employer payment—the insurance carrier pays the fee.

• Calculate and submit PCORI fees annually using IRS Form 720.
• The fee is based on the number of covered individuals under the plan.

Key Takeaway: Self-insured employers must file IRS Form 720 and pay the PCORI fee by July 31 each year.

• ALEs (50+ employees) must offer affordable, minimum value coverage or face penalties.
• Fully insured ALEs file Form 1095-C (Parts I & II), while insurance carriers file Form 1095-B.
• Self-insured ALEs file Form 1095-C, including coverage details (Part III).
• Non-ALEs (under 50) with self-insured plans must file Form 1095-B.
• Employers filing 10+ IRS forms must e-file.
• Insurance brokers can confirm ACA compliance, but tracking eligibility and reporting is the employer’s responsibility.
• Summary of Benefits and Coverage (SBC) must be provided to employees.
• Nondiscrimination rules (ACA Section 1557) must be followed.
• Health insurance waiting periods cannot exceed 90 days.
• Employers must provide a Marketplace Notice to new hires.
• Self-insured employers must pay the PCORI fee.
• Automatic enrollment for large employers (200+ employees) is not yet required but should be monitored.

1. Determine whether you are an ALE and review workforce size.
2. Work with an insurance broker to verify that your health plan meets ACA affordability and minimum value standards.
3. Use HRIS or payroll software to automate ACA tracking, filing, and compliance.
4. Confirm IRS reporting requirements based on whether the plan is fully insured or self-insured.
5. Review your benefits documents to ensure SBC disclosures are accurate.
6. Confirm compliance with ACA nondiscrimination rules.
7. Ensure all new hires receive a Marketplace Notice within 14 days.
8. Check waiting period policies to ensure they do not exceed 90 days.
9. If self-insured, calculate and file PCORI fees annually.
10. Monitor future ACA updates for any new requirements.

By understanding and fulfilling all ACA employer obligations, businesses can avoid penalties, reduce compliance risks, and ensure employees receive proper health benefits.