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Business Health Insurance

How Much Employee Health Plan Premium Is Your Business Required To Pay?

There are over 3.5 million small businesses in California, employing nearly 6.5 million people. Technically, none of these businesses has to offer health benefits to its employees.

But, your business could be impacted if you don't offer health insurance.

So, before we tell you how much of the premium you are required to pay, let's look at whether you may be fined if you don't offer insurance. 

In March 2010, the enactment of the Affordable Care Act mandated the following:

  • If your business has at least 50 full-time equivalent employees (FTE), you are considered a large applicable business and mandated to offer qualified and affordable health benefits or be subject to a tax penalty. This is typically referred to as the "employer mandate".
  • If your business has less than 50 employees, the mandate and tax penalty do not apply to you.


Determining Whether You Are A Large Applicable Employer


employee-health-plan-large-employerFor most businesses, it is easy to determine if you have 50 or more full-time employees. But, if you have part-time and seasonal employees, it can get a little more complicated.

In general, if your business employed an average of 50 or more full-time equivalent (FTE) employees during the previous calendar year, you are considered an applicable large employer for the current year. 

A business is considered an applicable large employer on a calendar-year basis. As such, you could be an applicable large employer in 2017, but not in 2016. If your business employed 50 or more full-time employees on average during the preceding calendar year, then you are an applicable large employer for the current calendar year. 

 Your business is NOT an applicable large employer if:

  • You employed less than 50 full-time employees on average during the previous calendar year, or
  • You employed more than 50 full-time employees no more than 120 days during the previous calendar year due to a seasonal workforce. 

Here is an FTE Calculator, if you are not sure if you are an applicable large employer.


Should Your Small Benefits Offer Health Benefits


employee-health-plan-benefitsIf your small business has less than 50 employees, the decision of whether to offer health benefits can be a difficult one. And, your company's contribution strategy of how much of each employee health plan premium you decide to pay will be an important factor in making that decision. Because there will be a long-term financial burden on your bottom line.  Employers need to keep in mind that most health insurance companies require a certain percentage of employees participate in the plan. Most companies will want to see two-thirds or more participation in the plan.

When participation falls too low, then the pool tends to become uneven and the costs do not remain balanced.To encourage employees to participate in the health plan, increasing your company percentage of contribution can make the plan more appealing to your employees. The less employees have to pay themselves towards their premium, the easier it will be to convince them to join.To help make your decision, here is what you need to know about employer contributions...


Employer Contribution Requirements


employee-health-plan-employer-contributionWith company-provided health insurance, employers must contribute a minimum percentage to each employee premium, and the employee pays the remaining amount. The employer is required to pay a minimum of 50% of the employee-only monthly premium in order to receive a tax deduction for paying that premium. In addition, that 50% contribution must be a minimum of $100. 

For example, if the cost to insure an individual employee is $300 per month, then the employer must contribute $150 towards that person’s insurance premium. Since the contribution is over $100, it meets the requirement.

For applicable large employers with 50 or more employees, there is an additional requirement that employees cannot pay more than 9.56% of their gross income for their premium. However, that percentage will be based on the lowest cost insurance plan that your company offers.

Here is an example. Your company offers three health plans, and your employee chooses the most expensive one. As long as the premium he/she would pay for the least expensive one doesn't exceed 9.56% of his/her gross income, you have met the requirement.

The point is to provide affordable options for employees.


Different Contribution Rates


employee-health-plan-employeesBusiness owners often think about offering different contribution rates for different classes of employees. For instance, sometimes they want to pay a higher percentage of health plan  premiums for management (highly compensated employees) than for hourly employees. Many times, this is because their family members are the managers, especially in small businesses.

However, this could be asking for trouble. The IRS could look at this as discrimination and subject your business to a penalty. If you want to set up different classes of employees, a good option would be to offer to pay a higher percentage for long-term employees than short-term employees. This way you are rewarding loyalty to the company.

And, if you really want to pay a higher percentage of management premiums, one way you could do this would be to pay it in the form of additional wages that offset the premium.


Final Thoughts


Health benefits provide great advantages for businesses in recruiting and keeping high-quality employees. And, the contribution strategy your company implements will have a long-term impact on your business financially.It is important to consult with a qualified and experienced health insurance broker who understands the laws. They will guide you into making the health plan decisions that are best for your business and ensure that you are in compliance with all of the applicable laws. 

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Craig Prince Craig’s background is quite diverse. His current focus is on Group Health Insurance, Medicare, Life, Disability, and Retirement Income, Keyman insurance, and Business Buy-out policy. Craig enjoys one-on-one with his clients to find the specific need of each employee or individual involved in the process.

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