Key takeaways:
Under the Affordable Care Act (ACA), businesses with 50 or more full-time employees are considered large employers. These companies must offer affordable healthcare coverage to their employees or face penalties. This rule is known as the ACA employer mandate.
To avoid a penalty, a health plan offered must include minimum essential coverage. It provides a baseline value to employees and their dependents.
A business subject to employer shared responsibility provisions must be compliant with the ACA employer mandate. If it isn’t, it will face penalties from the IRS.
The Affordable Care Act (ACA) includes an employer mandate. This requires large employers to provide health insurance that is within the financial reach of its employees. These “pay or play” rules are formally known as employer shared responsibility provisions.
Businesses that have 50 or more full-time employees will face a penalty if they don’t offer affordable health insurance. An employer must provide coverage to 95% of its full-time (or full-time equivalent) employees and their dependents.
If health coverage that meets certain minimum requirements is not provided, the employer will face a tax penalty from the IRS. This Affordable Care Act employer penalty is known as an employer shared responsibility payment.
Which businesses must offer health coverage for their full-time employees?
Businesses subject to the employer mandate are called applicable large employers, or ALEs. Whether a business is an ALE in the current year depends on the size of the employer’s workforce the previous year.
To be considered an ALE, a business must have an average of 50 full-time employees (or full-time-equivalent employees) during the previous calendar year. All kinds of employers can be ALEs, including tax-exempt organizations.
What are the ACA minimum requirements for large employers?
Under the ACA, the minimum requirements for applicable large employers involve minimum value and minimum affordability. Those requirements include:
Minimum essential coverage: Employers must provide health insurance coverage to at least 95% of full-time employees and their dependents.
Minimum value: An employer-sponsored health plan provides minimum value if it covers at least 60% of the total allowed cost of benefits that the plan expects to have. This includes substantially covering expected costs for in-patient hospitalization and physician services.
Minimum affordability: Employers must provide affordable coverage. Coverage is considered affordable if the employee’s contribution does not exceed a certain percentage of an employee’s household income. This figure is 9.02% for the 2025 tax year.
It is important to note that these requirements are just the beginning when it comes to ACA employer mandate rules. Employers should work with financial professionals to file proper forms and comply with all IRS regulations.
What steps can you take to ensure compliance with the ACA?
For business owners, complying with the ACA employer mandate can be a daunting task. Fortunately, there is guidance available from the IRS and tax experts.
Some important steps a business can follow to ensure compliance with employer shared responsibility provisions include:
Deciding whether to pay or play
Evaluating grandfathered status of group health plan
Reviewing plan benefits for affordability requirements
Reviewing plan benefits for essential coverage and minimum value requirements
Analyzing covered employees and dependents
Providing tax documents to employees and dependents
Complying with pay-or-play responsibilities
Satisfying IRS reporting requirements
It is important to work with financial, tax, and legal advisers. They can help ensure your business meets the requirements of the employer mandate.
How are the ACA employer penalties calculated?
An ALE can face a penalty for failing to offer affordable minimum coverage. If health insurance is offered but at least one full-time employee receives a premium tax credit for buying coverage through an ACA health insurance marketplace, that can also be subject to penalty.
The 2025 penalty is either $2,900 or $4,350 per full-time employee, minus the first 30 employees. For example: If an employer with 150 employees does not offer health insurance to its full-time employees and their dependents and at least one employee buys health insurance through the marketplace and receives a premium tax credit, the penalty would be $345,600 (150 - 30 = 120 x $2,900 = $348,000). The penalty is assessed monthly, so the business is subject to one-twelfth of the amount each month. In the example, that would mean a penalty of $29,000 monthly.
If your business scales up or down, what’s your responsibility for complying with the ACA’s employer mandate rules?
Your responsibility to follow the employer shared responsibility provisions depends on the number of full-time employees for the previous year. So whether you hire more people or scale down your workforce this year, your compliance will be based on the prior year.
Who enforces ACA regulations?
The U.S. Department of Health and Human Services has an Office for Civil Rights (OCR) with responsibilities that include enforcing regulations related to the Affordable Care Act. The OCR protects the civil rights of individuals who access or seek to access covered health programs or activities.
What other ACA rules do business owners need to be aware of?
ALEs subject to the employer mandate should be aware of some additional rules, such as:
If an employee has dependents, they are eligible to remain on their parent’s insurance until they turn 26 years old.
Minimum value and affordability will also be measured by whether any employee — even just one — is approved for an ACA health insurance plan and receives the premium tax credit for this coverage.
Full-time equivalent (FTE) employees are included when calculating how many full-time employees you have. A few part-time employees might add up to one FTE employee.
Do not count employees covered through Tricare or the Veterans Administration for ACA purposes.
Whether to include seasonal workers will depend on how many hours they worked and how long they have worked for the company.
This list provides some general rules. It is best to consult financial, tax, and legal advisers to ensure you are compliant with the employer mandate so that you can avoid penalties.
Frequently asked questions
There is an employer mandate for businesses with 50 or more full-time employees. The nationwide ACA individual mandate ended in 2017. Some states still have this requirement, which may come with a financial penalty.
If you are eligible for employer health insurance and choose not to sign up, you will need to be a cash-pay customer to access healthcare or take other medical coverage options such as a parent’s plan or a partner’s plan.
There is an employer mandate for businesses with 50 or more full-time employees. The nationwide ACA individual mandate ended in 2017. Some states still have this requirement, which may come with a financial penalty.
If you are eligible for employer health insurance and choose not to sign up, you will need to be a cash-pay customer to access healthcare or take other medical coverage options such as a parent’s plan or a partner’s plan.
The bottom line
Having 50 or more full-time employees or the equivalent means your business will be subject to the Affordable Care Act (ACA) employer mandate. This means employers have to play or pay. A business can “play” by offering affordable health insurance with minimum essential coverage. Or a business can pay penalties if coverage isn’t adequate or if even one employee joins an ACA marketplace plan and qualifies for a premium tax credit. In 2025, the penalty for not complying is either $2,900 or $4,350 per full-time employee, excluding the first 30 full-time employees. Consult financial, tax, and legal professionals to make sure you are complying with the employer mandate.
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References
Abend, C. (2024). 2025 ACA affordability percentage: Important information for employers. Equifax Workforce Solutions.
Duvall, M. (2025). ACA filing checklist for 2026: What employers should prepare for now. Trusaic.
HealthCare.gov. (n.d.). Employer shared responsibility payment (ESRP). Centers for Medicare & Medicaid Services.
Human Resources & Payroll. (2025). IRS releases ACA pay-or-play penalties for 2025.
Internal Revenue Service.(2025). ACA information center for applicable large employers (ALEs).
Internal Revenue Service. (2025). Employer shared responsibility provisions.
Internal Revenue Service. (2025). Minimum value and affordability.
Internal Revenue Service. (2025). Questions and answers on employer shared responsibility provisions under the Affordable Care Act.
Office for Civil Rights. (n.d.). Civil Rights. U.S. Department of Health and Human Services.
Plemons, C. (2024). Know the ACA rules for employers: The Affordable Care Act mandate. eHealth.
