Looking into Insurance Requirements for Your Employees

By Gene Cabrera|Mar 15, 2021|12:34 pm CDT

Health insurance is one of the most important benefits an employer can offer, regardless of size. Employer sponsored healthcare can be a make-or-break factor for both recruiting and retention, offering current and prospective employees a sense of security and a contingency plan if they should ever get sick.

Unfortunately, many small and medium-sized businesses can’t afford to offer health benefits. According to the Kaiser Family Foundation, only 30 percent of US businesses with fewer than 50 employees provide health insurance to their workers. In contrast, more than 97 percent of U.S. businesses with more than 50 employees provide health insurance.

It’s a particularly tall order in the restaurant and hospitality industries, where margins are already slim. In a survey of restaurant workers conducted by Restaurant Opportunities Centers United, 90 percent of respondents said their employers didn’t offer health coverage. And even if owners can afford to offer some sort of health coverage, many team members choose not to enroll due to high employee premiums or even higher deductibles. The Affordable Care Act (ACA) has helped in this respect, giving employees of small businesses access to relatively affordable health insurance plans.

The ACA is a (very, very) complex piece of legislation, and its compliance requirements vary depending on the size of your business. In this article, we’ll cover in detail the health insurance requirements for both small and medium-sized businesses, as well as touch on some of the mandates on larger organizations.

Are Small Businesses Required to Offer Health Insurance?

In short, no. There are currently no federal or state laws mandating that small businesses provide health insurance to their employees. The ACA requires all businesses with more than 50 full time employees (or full-time equivalent employees) to offer some sort of health insurance plan. Many small and medium-sized businesses are exempt from this mandate because they have smaller staffs. For these businesses, offering employees a health plan is entirely optional.

Before we go any further, let’s get some definitions straight.

Applicable Large Employer (ALE)

A business with 50 or more full-time or full-time equivalent employees.

Full Time Employees

Any employee who works 30 hours or more per week or 130 hours per calendar month, including vacation and paid leaves of absence.

Full Time Equivalent (FTE) Employees

FTE is a tool to help business owners determine how many full-time employees they have, along with the number of part-time employees that can be translated into full-time terms. This number is important because it will dictate whether your business has more than 50 employees, and is therefore subject to ACA mandates. If you’re not sure about your FTE number, you can calculate it here.

The ACA and Small Businesses

The ACA offers certain small business owners options for offering benefits to their employees. Under the law’s Small Business Health Options Program (SHOP) for businesses with 1 to 50 full-time employees, some business owners can provide health and dental insurance plans while also qualifying for the Small Business Health Care Tax Credit to lower premium costs.

If your small business decides on offering a health insurance plan to your employees, you cannot use a waiting period that exceeds 90 days under the ACA. Get more information on the ACA and small businesses right here.

Are Larger Businesses Required to Offer Health Insurance?

Yes. If your business has 50 or more staffers, you are required to offer health insurance to your employees. You qualify as an applicable large employer (ALE) and are subject to the employer mandate to offer coverage to at least 95 percent of your full-time staffers.

Failure to comply with this regulation will result in penalties levied by the IRS — and those penalties are not cheap. If an ALE fails to offer health insurance, they’ll be subject to a tax penalty of $3,860 per employee per year. As you can see, larger businesses have a very, very strong incentive to offer health insurance coverage.

The ACA also requires ALEs to cover their employees’ dependents up to age 26. In other words, this often means that you need to provide coverage for your employees’ children. The ACA also gives ALEs the option to offer coverage for spouses and domestic partners, but this is not a requirement.

The Benefits of Offering Employee Health Insurance

While it may seem like a daunting prospect, offering employees health coverage can be a win-win for both you and your workers. In addition to doing right by your staff and providing them with a safety net, it can actually help your business save money long-term.

Offering affordable health benefits to your employees can work wonders for recruiting and retention. According to a Society for Human Resource Management (SHRM) study, 46 percent of surveyed employees said health insurance coverage influenced their decision to work for that particular company. Furthermore, 78 percent said their health insurance coverage was a factor in their decision to stay in their current job.

Lowering your business’s turnover rate can make a huge difference, especially when the hospitality sector’s turnover rates are so notoriously high. Competitive, affordable benefits will reduce the need to replace employees, a costly endeavor that eats up resources and takes quite a bit of effort. Hiring and training a new employee takes a lot of time, but it can also take time for an employee to actually get good at their job and perform at the same level as veteran staffers. To repeat that process over and over costs your business thousands of dollars. But offering health insurance can help you avoid that headache.

Finding the Right Benefits Partner

Deciding how to handle employee benefits doesn’t have to be a burden. With an experienced partner like Fourth, you can easily offer comprehensive benefits packages so that you’ll have a leg-up on your competition in the search for talent. Our programs will allow you to reduce costs while still offering employees quality benefits that will improve their lives. As hospitality industry veterans and experts, we’ll work with you to outline plans that will best fit the needs of your business and your team members.

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