Skip to content

ACA Employer Mandate: Small Businesses Bracing for Penalties


This year has been an extremely complicated and stressful one for most involved in the healthcare industry. In the years since the Affordable Care Act (ACA) went into effect, the market had begun to stabilize as everyone adjusted to the laws and regulations associated with the new healthcare system.

However, that all began to change when Donald Trump won last year’s presidential election and promised to do all that he can to repeal the Affordable Care Act. As President Trump begins to lay the groundwork to undoing ACA laws, the uncertainty is causing major disruption throughout the healthcare industry.

With ACA premiums rising to record highs and many insurers exiting specific markets (such as the small group market), both individuals and employers face numerous challenges as we enter 2018, and beyond. But with a provision of the Affordable Care Act being enforced this year for the first time, employers – especially small businesses – face yet another new healthcare related issue.

Recently, the Internal Revenue Service (I.R.S.) began sending out notices to employers who violated the ACA employer mandate in 2015. These companies will be facing potentially significant fines because they failed to offer their employers qualifying health insurance coverage.


The Affordable Care Act has numerous provisions, but the employer mandate is one of the most divisive. But what exactly is the employer mandate, and what are the penalties associated with violating it? 

The ACA employer mandate states that Applicable Large Employers or “ALEs” (those who have 50 or more employees) are not only required to offer health insurance to at least 95% of their eligible full-time employees (working 30 or more hours per week) but the plans must meet minimum requirements (Minimum Essential Coverage or “MEC”) and must be “affordable” (a single rate of not more than 9.69% of an employee’s gross household income).

If a company is determined to have not complied with any of the above provisions, they face possible penalties levied by the United States government.

The reason why the employer mandate was included had to do with the concern that companies would stop offering health insurance to employees’ due to the new subsidies available for lower-income people as a result of the individual mandate. In addition, if employers offered benefits but the coverage was limited and/or unaffordable, employees would be forced to find coverage elsewhere, including in the ACA marketplace which would shift the financial burden to taxpayers.

The plan from the beginning was to phase-in the penalties beginning in 2015 and based on employer size. However, the delay has been longer than expected as the I.R.S. needed more time and resources to build efficient compliance systems. Now that these systems are in place, employers are bracing for potentially significant fines.


We mentioned earlier in this post that the I.R.S. is sending out notices to companies who violated the provision in 2015, the first year the penalties were to begin. Why is the I.R.S. so behind?

Back in 2015, the I.R.S. repeatedly ran into problems with processing the forms that were sent to companies to ensure that they were compliant. Most of the issues came down to a lack of money and resources necessary to successfully execute the mandate penalties.

Now that the I.R.S. is ready to begin handing out and collecting fines for violations that occurred almost 3 years ago, it’s full speed ahead.

Employers aren’t the only ones who aren’t happy about the mandate and the penalties associated with it. The Treasury Department said last week that it objects to the employer mandate, but is legally compelled to enforce it and collect fines from companies who violate its provisions.


As with most of the provisions of the Affordable Care Act, the rules for the employer mandate are complex. The amount an employer is fined is based on which portion of the provision has been violated. The failure to offer coverage to eligible employees carries a different penalty than offering coverage that is unaffordable and/or doesn’t meet minimum qualifications.

The penalty happens when at least one employee buys insurance through the ACA marketplace and receives a subsidy. In addition, the per employee fine increases each year, which could lead to significant penalties over time, especially when you consider that these first fines are for 2015. Fines still have to be assessed and collected for 2016 and 2017.

To maintain ACA compliance and avoid fines, companies must send the I.R.S. an employee headcount and healthcare coverage report. The I.R.S. then processes these forms to determine if a violation took place.


With fines expected to be handed out over the next few weeks, small businesses are the ones who are most likely to owe money to the I.R.S. due to violations of the employer mandate. While larger companies have processes in place to deal with I.R.S. related issues, as well as in-house HR compliance experts, many small businesses lack these resources.

A recent Kaiser Family Foundation survey found that around 8% of companies with 50-199 employees don’t offer insurance to their workforce. This likely means that a large number of small employers will be facing significant penalties as we near the end of 2017.

To help alleviate the pressure and resources needed to properly execute an HR and ACA compliance strategy, smaller employers can look to partnerships in order to avoid future penalties and fines. HR outsourcing companies and PEOs for example offer small employers access to better health insurance and employee benefits, all while providing expertise in federal, state, and local laws to help maintain compliance.

Looking at strategic HR partnerships could be a valuable option for small businesses in 2018 as even more uncertainty looms in the healthcare industry.
Want to learn more about PEOs? Check out our eBook, How Well Do You Know PEO? This eBook provides an overview of the PEO industry as well as helpful information for brokers and employers!

More like this

blob - green

Our expert advice, direct to your inbox.

blob - yellow