ACA Compliance Checklist for Small Businesses
Small businesses face unique challenges in navigating the complexities of the Affordable Care Act for small businesses. This comprehensive ACA compliance checklist will help you understand your responsibilities and avoid penalties by following ACA health insurance requirements. With expert guidance from Take Command, small businesses can simplify the process of offering ACA-compliant coverage to employees.
Need help with ACA compliance? Discover how Take Command can streamline your process and keep your business on track.
10 Minute Read
Table of Contents
Introduction
Key Takeaways
What is the ACA and Why Does It Matter for Small Businesses?
ACA Compliance Checklist for Small Businesses
Key Penalties for ACA Non-Compliance
How to Stay ACA Compliant Year-Round
Resources for Small Business ACA Compliance
Conclusion
Key Takeaways
Learn the key ACA health insurance requirements for small businesses.
Access a detailed ACA compliance checklist tailored to employers.
Discover tools to maintain year-round ACA compliance easily.
What is the ACA and Why Does It Matter for Small Businesses?
The Affordable Care Act (ACA), enacted in 2010, was designed to increase access to affordable health insurance, improve the quality of care, and curb healthcare costs. For small businesses, the ACA introduces both opportunities and challenges as they navigate ACA requirements for small businesses.
One key component of the ACA that directly impacts small businesses is the employer mandate. This rule requires Applicable Large Employers (ALEs)—businesses with 50 or more full-time equivalent (FTE) employees—to offer health insurance that meets minimum essential coverage (MEC), affordability, and minimum value standards. Failure to comply with this ACA mandate can result in significant financial penalties, known as the Employer Shared Responsibility Payment (ESRP). Compliance ensures employee trust and business competitiveness under ACA requirements for small businesses.
Non-compliance with ACA requirements can lead to penalties and affect employee satisfaction and trust. By understanding the ACA’s rules and integrating them into their operations, small businesses can avoid costly fines and ensure they meet their employee obligations. Navigating these requirements may seem complex, but it is essential for maintaining a competitive edge and staying compliant with federal regulations.
What Small Businesses Need to Know About ACA Compliance
Navigating ACA compliance can feel overwhelming, but breaking it into manageable steps simplifies the process. Here’s a checklist to help your small business meet all Affordable Care Act for small businesses requirements:
Determine Your Business Size and ACA Applicability: Confirm whether your business qualifies as an ALE, subject to ACA employer mandate rules.
Offer Minimum Essential Coverage (MEC): Offer plans that meet ACA health insurance requirements, including minimum essential coverage and affordability standards.
Ensure Affordability: Verify that employee contributions for self-only health coverage do not exceed 9.12% of their household income (as of 2024). Use ACA affordability calculators for accuracy.
Provide Minimum Value Coverage: Confirm that your health insurance plans cover at least 60% of the total cost of medical services.
File IRS Forms 1094-C and 1095-C: Meet annual reporting requirements by submitting these forms to the IRS to document your employees’ health coverage. Be sure to adhere to deadlines to avoid penalties.
Track Employee Hours and Benefits Eligibility: Monitor employee work hours to determine who qualifies as full-time (30+ hours per week) and ensure benefits eligibility.
Report Required Information to Employees: By the required deadlines, employees must have timely access to Form 1095-C, which details their health coverage.
Adhere to FSA Limits: Stay compliant with Flexible Spending Account (FSA) contribution limits set by the ACA and notify employees of these caps.
Use Wellness Program Incentives: If your business offers wellness programs, ensure they align with ACA guidelines, encouraging incentives for healthy behaviors.
Stay Informed About ACA Updates: To maintain compliance, regularly review ACA guidelines, updates, and changes in thresholds or reporting requirements.
By following this checklist, small businesses can confidently meet ACA requirements and provide high-quality health insurance coverage to their employees. In the next sections, we’ll dive deeper into these steps to help you stay on track year-round.
Determine Your Business Size and ACA Applicability
Understanding your business size is the first critical step in determining whether the ACA’s employer mandate applies to you. Businesses with 50 or more full-time equivalent (FTE) employees are classified as Applicable Large Employers (ALEs) under the Affordable Care Act. They must offer ACA-compliant health insurance to their full-time employees.
What is an FTE Employee?
An FTE employee is a unit of measurement that combines the total hours worked by both full-time and part-time employees to determine the business’s overall workforce size. A full-time employee works at least 30 or more hours per week or 130 hours monthly. Part-time employee hours are aggregated and converted into full-time equivalents.
How to Calculate FTEs
To determine your FTE count:
Add up the total hours worked by part-time employees in a month.
Divide that total by 120 to find the number of FTEs your part-time staff represents.
Add the number of full-time employees to the FTE count derived from part-time staff.
Example:
If your business has 40 full-time employees and part-time employees who collectively work 1,200 hours in a month:
1,200 ÷ 120 = 10 FTEs from part-time staff.
40 full-time employees + 10 FTEs = 50 total FTEs.
In this case, your business qualifies as an ALE and must comply with the ACA’s employer mandate.
Why This Matters
If your business is classified as an ALE, you are legally required to:
Offer health insurance that meets ACA standards to at least 95% of your full-time employees.
Provide coverage that is both affordable and meets minimum value requirements.
Fulfill annual reporting obligations to the IRS.
Failure to correctly calculate your FTEs and comply with the employer mandate can result in significant penalties. If you’re unsure about your status, consult with tools, calculators, or experts like those at Take Command to ensure compliance.
The following section will explore how to meet the ACA’s minimum essential coverage requirements.
Offer Minimum Essential Coverage (MEC)
To comply with the Affordable Care Act (ACA), employers classified as Applicable Large Employers (ALEs) must offer health insurance that meets Minimum Essential Coverage (MEC) standards. MEC refers to the baseline health benefits required under the ACA, ensuring employees have access to comprehensive and meaningful healthcare services.
What Does MEC Include?
A health plan satisfies MEC requirements by covering a broad range of essential health services. These include, but are not limited to:
Preventive Services: Annual checkups, screenings, and vaccinations.
Emergency Services: Access to care during medical emergencies.
Hospitalization: Coverage for inpatient care and surgeries.
Mental Health and Substance Use Disorder Services: Including behavioral health treatment.
Prescription Drugs: Coverage for essential medications.
Maternity and Newborn Care: Prenatal and postnatal services.
Pediatric Services: Including dental and vision care for children.
Employers can review plan documents or consult their health insurance provider to confirm whether their plans meet these MEC standards.
Why Offering MEC Matters
Failing to offer MEC-compliant health insurance triggers ACA penalties under the Employer Shared Responsibility Payment (ESRP). Employers who fail to provide MEC to at least 95% of their full-time employees risk facing fines that can quickly accumulate, particularly for larger workforces.
How to Ensure Compliance
Work with a Qualified Health Plan Provider: To simplify the process, choose a health insurance carrier experienced in ACA compliance.
Review Plan Documents: Verify that the policy explicitly states it meets MEC requirements.
Provide Coverage to All Eligible Employees: Ensure that full-time employees and their dependents are included.
By offering MEC-compliant health insurance, you avoid penalties and ensure your employees have access to vital healthcare services, fostering a healthier and more productive workforce.
Next, we’ll examine how to ensure your health insurance offerings meet the ACA’s affordability standards.
Ensure Affordability
The Affordable Care Act (ACA) requires employers to offer comprehensive and affordable health insurance. For 2025, the ACA defines affordability as ensuring that an employee’s contribution for self-only coverage does not exceed 9.12% of their household income. This affordability threshold is a crucial compliance component for Applicable Large Employers (ALEs).
How to Determine Affordability
Because most employers do not have access to their employees’ total household income, the ACA provides three safe harbor methods to determine affordability based on information employers can reasonably obtain:
W-2 Wages Safe Harbor
Calculate affordability based on an employee’s W-2 wages (Box 1) as reported to the IRS.
Example: If an employee earns $40,000 annually, their self-only premium contribution cannot exceed $3,648 for the year ($40,000 × 9.12%).
Rate of Pay Safe Harbor
Use the employee’s hourly wage or monthly salary to determine affordability.
Example: For an employee earning $15/hour, multiply their hourly rate by 130 (the average full-time monthly hours), then apply the 9.12% threshold.
Federal Poverty Line (FPL) Safe Harbor
Base affordability on the federal poverty level for a single individual.
For 2024, the FPL safe harbor ensures affordability if the monthly employee contribution for self-only coverage does not exceed $103.28 (based on a 2023 FPL of $13,590).
Why Affordability Matters
Failing to meet affordability standards can result in penalties under the ACA’s Employer Shared Responsibility Payment (ESRP). If an employee obtains subsidized coverage through a health insurance marketplace because their employer’s plan is deemed unaffordable, the employer may face fines.
Tips to Ensure Affordability
Work with Benefits Consultants: Use tools or consult experts to calculate employee contributions accurately.
Monitor Premium Costs: Regularly review your health plan to ensure employee contributions stay within the affordability threshold.
Use Payroll Data Effectively: Leverage your payroll system to apply safe harbor methods easily.
Meeting the affordability requirement keeps your business compliant and ensures that employees can reasonably access the health insurance they need. Next, we’ll discuss confirming that your plans meet the ACA’s minimum value standards.
Provide Minimum Value Coverage
In addition to affordability, the Affordable Care Act (ACA) requires that employers offer health insurance plans that meet minimum value coverage standards. A plan satisfies this requirement is designed to cover at least 60% of the total cost of covered medical services for a standard population. This ensures employees are not burdened with excessive out-of-pocket costs for essential healthcare.
What is Minimum Value Coverage?
Minimum value coverage means that the health plan pays, on average, 60% of healthcare costs, leaving employees responsible for the remaining 40% through deductibles, copayments, and coinsurance. To meet ACA standards, a plan must include substantial coverage for inpatient and physician services.
How to Determine Minimum Value
Employers can use the following tools and resources to ensure their plan meets the minimum value standard:
Minimum Value Calculator
The Department of Health and Human Services (HHS) provides a Minimum Value Calculator. Employers can input plan details to determine whether it meets the required coverage level.
Actuarial Certification
Employers with unique or custom plans can work with a licensed actuary to obtain compliance certification.
Pre-Approved Plans
Most major insurance providers offer plans explicitly labeled as ACA-compliant and meeting minimum value requirements.
Why Minimum Value Matters
Suppose a plan does not meet the minimum value standard and at least one full-time employee receives a premium tax credit through a health insurance marketplace. In that case, the employer may be subject to penalties under the Employer Shared Responsibility Payment (ESRP).
Tips for Compliance
Choose ACA-Certified Plans: Work with reputable insurance providers to select plans that meet minimum value standards.
Consult with Experts: Partner with benefits consultants or brokers to review and verify plan details.
Communicate with Employees: Ensure employees understand their coverage, building trust and avoiding confusion.
Meeting the minimum value coverage requirement protects your business from penalties and ensures employees access to meaningful and effective healthcare. The following section will discuss the reporting obligations required to stay ACA-compliant.
File IRS Forms 1094-C and 1095-C
Applicable Large Employers (ALEs) must file IRS Forms 1094-C and 1095-C annually to report the health insurance coverage they offer to employees. These forms are crucial to ACA compliance, providing the IRS and employees with detailed information about your health plan offerings.
What Are Forms 1094-C and 1095-C?
Form 1094-C: This is the transmittal form, summarizing the information provided in the accompanying 1095-C forms for the IRS. It also serves as a cover sheet for your submission.
Form 1095-C: This form is issued to individual employees and the IRS, detailing the coverage offered to each eligible full-time employee. It includes key information such as:
Whether coverage was offered each month.
The affordability and minimum value of the plan.
Whether the employee enrolled in the offered coverage.
Deadlines for Filing
To avoid penalties, it’s critical to adhere to these deadlines:
Provide Form 1095-C to Employees: Must be delivered by January 31.
Submit Forms to the IRS:
If filing electronically, the deadline is March 31.
If filing by paper, the deadline is February 28.
Note: Employers with 250 or more forms must file electronically.
How to File the Forms
Gather Required Information
Collect data on employee health coverage, including months of coverage offered, employee contributions, and plan affordability.
Complete Forms 1094-C and 1095-C
Use IRS instructions or tax software to ensure accurate completion.
Ensure each 1095-C form matches the information provided in the 1094-C.
File with the IRS
Submit electronically via the IRS’s Affordable Care Act Information Returns (AIR) system or mail paper forms by the appropriate deadline.
Distribute Forms to Employees
Send completed 1095-C forms to employees, allowing them to use the information for personal tax filings.
Penalties for Non-Compliance
Failure to file these forms accurately or by the deadline can result in penalties:
Failure to File: Up to $290 per form for missing deadlines.
Incorrect or Incomplete Forms: Additional fines if forms are inaccurate or incomplete.
Tips for Staying Compliant
Automate Reporting: Use payroll or HR software that integrates ACA reporting capabilities to streamline form generation and filing.
Verify Data Accuracy: Double-check all employee and coverage data before filing.
Consult Experts: Partner with tax professionals or benefits consultants to ensure compliance.
Accurate and timely filing of Forms 1094-C and 1095-C ensures compliance with ACA regulations and demonstrates your commitment to supporting your employees. Next, we’ll cover tracking employee hours and determining benefits eligibility.
Track Employee Hours and Benefits Eligibility
Accurately tracking employee hours is essential for maintaining compliance with the Affordable Care Act (ACA). The ACA defines full-time employees as those working 30 or more hours per week or 130 hours monthly. Businesses must ensure that eligible employees have health insurance that meets ACA standards.
Why Tracking Employee Hours Matters
Proper tracking is crucial for several reasons:
Determine Eligibility: Ensure employees working 30+ hours per week are identified as full-time and offered coverage.
Calculate Full-Time Equivalent (FTE) Employees: Part-time hours must be aggregated to determine your total workforce size and confirm if your business is an Applicable Large Employer (ALE).
Avoid Penalties: Failing to offer coverage to at least 95% of your full-time employees can result in significant penalties under the Employer Shared Responsibility Payment (ESRP).
Methods for Tracking Hours
The ACA allows employers to use one of the following methods to track hours and determine employee eligibility:
Monthly Measurement Method
Determine an employee’s full-time status based on hours worked during a calendar month.
This method requires continuous monitoring but provides real-time insights into employee eligibility.
Look-Back Measurement Method
Measure employee hours and establish full-time status by using a defined “look-back” period (e.g., 3–12 months).
Employees classified as full-time during the look-back period must be offered coverage for the subsequent “stability period,” even if their hours drop.
Tools for Tracking Hours
Manual tracking can be time-consuming and prone to error. Instead, consider leveraging these tools:
HR Software: Automate hour tracking and ACA eligibility determination.
Timekeeping Systems: Use digital time clocks or software to track hours worked in real time.
Payroll Integration: Many payroll systems include ACA compliance features for tracking hours and generating reports.
Tips for Compliance
Train Managers: Ensure supervisors understand the importance of accurate timekeeping and classification.
Audit Regularly: Periodically review employee hours and classifications to prevent errors.
Document Everything: To protect your business in case of audits or disputes, maintain records of tracked hours and coverage offers.
Accurate tracking of employee hours ensures compliance with ACA regulations, helps avoid costly penalties, and fosters organizational transparency. The following section will discuss the information you must report to employees as part of ACA compliance.
Report Required Information to Employees
As part of ACA compliance, employers are required to provide employees with detailed information about their health insurance coverage. This reporting ensures transparency and helps employees make informed decisions about their healthcare.
What to Report
Form 1095-C:
Includes details of the health insurance coverage offered.
Specifies whether the plan meets minimum essential coverage (MEC) and affordability standards.
States whether the employee was enrolled in coverage each month.
Summary of Benefits and Coverage (SBC):
A standardized document outlining the health plan’s benefits, including covered services, out-of-pocket costs, and exceptions.
When to Report
Form 1095-C Deadline:
Must be provided to employees by January 31 of the following year.
SBC Distribution:
At the start of the plan year or during open enrollment periods.
When there are significant changes to the plan.
Tips for Compliance
Distribute Electronically or by Mail: Ensure employees receive these documents on time via their preferred method.
Maintain Records: Keep copies of all distributed forms and documentation.
Educate Employees: Guide how to use these documents for their tax filings or to understand their coverage.
Adhere to FSA Limits
Flexible Spending Accounts (FSAs) allow employees to set aside pre-tax dollars for qualified medical expenses. However, the ACA imposes annual contribution limits that employers must enforce.
FSA Contribution Limits
For 2025, the maximum employee contribution limit to an FSA is $3,300.
Employers can also contribute to FSAs, but combined employer and employee contributions must not exceed the set limit.
How FSA Limits Affect Employees
Tax Savings: Contributions are pre-tax, reducing taxable income.
Use-It-Or-Lose-It Rule: Funds must typically be used within the plan year, although some plans offer a grace period or a carryover option (up to $610 in 2024).
Eligible Expenses: These include medical, dental, vision, and pharmacy costs, among others.
Tips for Employers
Communicate Limits Clearly: Ensure employees understand the contribution limits and spending rules.
Offer Flexibility: Include carryover or grace period options to maximize employee benefits.
Monitor Contributions: Use payroll systems to track FSA contributions and ensure limit compliance.
Adhering to FSA limits, you help employees maximize their benefits while avoiding compliance issues.
Use Wellness Program Incentives
The ACA encourages employers to implement wellness programs by offering incentives for healthy behaviors. These programs can improve employee health, reduce healthcare costs, and foster a more engaged workforce.
Types of Wellness Program Incentives
Health-Contingent Programs:
Incentives are tied to achieving specific health goals (e.g., lowering cholesterol or quitting smoking).
Must provide alternative ways to qualify for rewards if health goals are unachievable due to medical conditions.
Participatory Programs:
Rewards for activities unrelated to health outcomes, such as attending wellness seminars or completing health risk assessments.
ACA Incentive Limits
Financial incentives can be up to 30% of the cost of health coverage (or 50% for tobacco cessation programs).
Incentives must be designed to promote health and be accessible to all employees.
Examples of Wellness Incentives
Premium discounts for participating in fitness programs.
Gift cards or financial rewards for completing annual check-ups.
Reduced deductibles for participating in health screenings.
Tips for Employers
Ensure Compliance: Wellness programs must comply with ACA guidelines, HIPAA, and EEOC regulations.
Promote Inclusivity: Provide reasonable alternatives to ensure all employees can participate.
Communicate Effectively: Regularly share information about the program and its benefits.
Leveraging wellness program incentives aligns with ACA goals, boosts employee satisfaction, and promotes a healthier workplace. Next, we’ll discuss potential penalties for failing to comply with ACA requirements.
Key Penalties for ACA Non-Compliance
Failing to meet the requirements of the Affordable Care Act (ACA) can result in significant financial penalties for employers. These penalties are designed to enforce compliance with the ACA’s provisions, including offering compliant health insurance, accurately reporting information, and meeting deadlines. Below are the primary penalties employers need to be aware of:
Employer Shared Responsibility Payment (ESRP)
The ESRP applies to Applicable Large Employers (ALEs) that fail to meet the ACA’s employer mandate. There are two primary scenarios where the ESRP could result in a penalty:
Failure to Offer Minimum Essential Coverage (MEC)
If an ALE does not offer MEC to at least 95% of its full-time employees (and their dependents), and at least one employee receives a premium tax credit through the marketplace, the employer faces a penalty.
The Penalty for 2025 is $2,900 per full-time employee (excluding the first 30 employees).
Failure to Offer Affordable and Minimum Value Coverage
If an ALE offers coverage but it does not meet affordability or minimum value standards, and at least one employee receives a premium tax credit, the penalty is calculated differently.
Penalty Amount for 2025: $4,350 per employee receiving a premium tax credit.
Penalties for Filing Errors
In addition to ESRP penalties, employers may face fines for failing to file or incorrectly filing required forms, such as Forms 1094-C and 1095-C:
Failure to File or Late Filing:
Penalty: $290 per form for failing to file or filing late.
Maximum Annual Penalty: Up to $3,532,500 for large businesses.
Incorrect or Incomplete Forms:
Penalty: $290 per form for submitting incorrect or incomplete information.
If corrected within 30 days of the filing deadline, the penalty may be reduced to $50 per form.
Compounding Risks
Penalties can add up quickly, especially for larger organizations. Non-compliance with multiple ACA requirements can result in overlapping penalties, creating significant financial strain.
How to Avoid Penalties
Offer ACA-Compliant Coverage: Ensure your health plans meet MEC, affordability, and minimum value requirements.
File Forms Accurately and On Time: Use automated tools or professional services to ensure timely and accurate filings.
Monitor Compliance Regularly: Conduct periodic audits of your ACA compliance processes to identify and address potential gaps.
Remaining proactive and informed about ACA requirements protects your business from financial penalties and builds employee trust. The following section will explore tips for maintaining ACA compliance year-round.
How to Stay ACA Compliant Year-Round
Compliance with the Affordable Care Act (ACA) requires consistent monitoring and proactive management of your business’s health insurance and employee data. You can simplify these tasks by leveraging technology and expert support and ensure ongoing compliance.
Tips for Year-Round ACA Compliance
Use HR and Payroll Software
Modern HR software simplifies ACA compliance by automating key tasks, including tracking employee hours, calculating full-time equivalent (FTE) status, and generating reports.
Many platforms also integrate with payroll systems to streamline filing IRS Forms 1094-C and 1095-C.
Implement Automated Tracking Tools
Accurate hour tracking is essential for determining employee eligibility for health coverage. Automated timekeeping systems ensure precision and reduce errors, helping you comply with the ACA’s eligibility rules.
Choose tools that allow real-time monitoring and alerts when employee hours approach full-time status.
Regularly Audit Health Insurance Plans
Review your health insurance offerings periodically to ensure they meet Minimum Essential Coverage (MEC), affordability, and minimum value requirements.
Stay informed about ACA updates, including changes to affordability thresholds and penalties.
Educate Managers and HR Staff
Train your HR team on ACA requirements to ensure they are prepared to handle compliance tasks effectively.
Share updates and resources regularly to keep everyone informed.
Partner with a Professional Employer Organization (PEO)
A PEO can handle many ACA compliance tasks on your behalf, including tracking employee hours, managing benefits administration, and filing IRS forms.
Partnering with a PEO is especially beneficial for small businesses with limited HR capacity, as it provides access to expert guidance and scalable compliance solutions.
Create a Compliance Calendar
Maintain a detailed calendar of ACA deadlines, including filing dates for IRS forms, employee notification requirements, and open enrollment periods.
Set reminders to ensure no deadlines are missed.
Monitor Legislative Updates
The ACA’s requirements and thresholds may change annually. Regularly check for updates from reliable sources like the IRS or consult with ACA compliance experts to stay ahead.
Why Ongoing Compliance Matters
Staying compliant year-round helps you avoid penalties and fosters a strong relationship with employees by demonstrating your commitment to their healthcare needs. By integrating technology and expert support into your compliance strategy, you can confidently navigate the complexities of the ACA while focusing on growing your business.
The following section will provide resources to help small businesses manage ACA compliance effectively.
Resources for Small Business ACA Compliance
Staying informed and equipped with the right tools is essential for navigating ACA compliance. Below is a curated list of resources to help small businesses understand and meet their Affordable Care Act requirements. These include official guidelines, calculators, and expert services to simplify compliance.
ACA Calculators and Tools
Health Insurance Brokers Specializing in ACA Compliance
Take Command
Take Command offers expert guidance and tools to help small businesses comply with the ACA, including health insurance planning and benefits management.
National Association of Health Underwriters (NAHU)
Connect with brokers who specialize in ACA-compliant health insurance solutions for businesses.
Helpful Articles and Resources
HR and Compliance Tools
Gusto
Payroll and benefits software with ACA compliance features to automate hour tracking, form filings, and benefits management.
Zenefits
A platform offering HR solutions and ACA compliance tools tailored for small businesses.
By leveraging these resources, small businesses can stay on top of ACA requirements and reduce the compliance burden. Consult Take Command or a trusted health insurance broker for more personalized assistance.
Ensure Your Business is ACA Compliant
Navigating ACA compliance is essential for small businesses to provide employees with quality health insurance while avoiding costly penalties. You can safeguard your business and foster employee trust by understanding and fulfilling requirements like offering minimum essential coverage (MEC), ensuring affordability, and accurately reporting health plan information.
Reviewing your health insurance offerings regularly, tracking employee hours, and staying informed about ACA updates are key steps to maintaining compliance year-round. Leveraging tools like HR software, ACA calculators, and professional guidance can simplify the process and help you avoid pitfalls.
Staying ACA-compliant protects your business from penalties. It demonstrates your commitment to employee well-being and positions your business as a responsible employer.
Ready to simplify ACA compliance? Partner with Take Command for expert guidance and tools tailored to your business’s needs. Contact us today to get started.
