How Many Employees Are Considered a Small Business for Health Insurance? Here’s What You Need to Know!

If you’re a small business owner or planning to start a business, understanding the health insurance requirements can be a bit confusing. You might wonder, “How many employees do I need to qualify for health insurance?” or “Am I required to offer health benefits?” Well, you’ve come to the right place! In this article, I’m breaking down everything you need to know, from what qualifies as a small business to the tax benefits and responsibilities you might face as you grow your team.

By the time you finish reading, you’ll have a clear picture of your obligations (or lack thereof), plus some practical tips on what to do if you want to offer health insurance to your employees. So, don’t miss out on all the details—I’ve got you covered.

How Many Employees Are Considered a Small Business for Health Insurance?

So, let’s start with the basics: how many employees does it take for your business to be considered small when it comes to health insurance? Well, in most cases, a small business is one with fewer than 50 full-time employees or full-time equivalent (FTE) employees. But here’s the thing: just because you’re a small business, it doesn’t mean you automatically have to provide health insurance for your employees. Let’s unpack this.

The Legal Stuff: Are You Legally Required to Offer Health Insurance?

In the United States, if you have fewer than 50 employees (or FTEs), you’re not legally required to provide health insurance to your team. This is a huge relief for many small businesses that might not have the financial flexibility to offer this benefit right away. However, offering health benefits voluntarily could give your business a competitive edge—let’s not forget, employees love health insurance.

Why Might You Want to Offer Health Insurance?

You might be thinking, “But why should I offer health insurance if I’m not legally required to?” Great question! Here are a few reasons why providing health insurance could be a game-changer for your business:

1. Attracting Top Talent

We all know the job market is tough, and employees are looking for more than just a paycheck. Health insurance is one of the top benefits that job seekers care about. If you offer it, you’ll stand out to potential employees who value their health and well-being. Imagine hiring someone because they want the job—and the benefits!

2. Employee Retention

Let’s be real: hiring employees is a hassle. And losing good employees is even worse. Offering health insurance can increase employee satisfaction, loyalty, and longevity at your company. When employees feel supported, they’re more likely to stick around, saving you the cost and time of constant turnover.

3. Tax Benefits for Small Businesses

If you do choose to offer health insurance, you might be eligible for some pretty sweet tax credits. The Affordable Care Act (ACA) offers a Small Business Health Care Tax Credit to eligible businesses with fewer than 25 employees who purchase health insurance through the SHOP marketplace. This could save you money on your taxes while helping you cover your employees’ medical costs.

The SHOP Marketplace: A Good Option for Small Businesses

If you’re a small business with 1 to 50 employees, you might qualify for the SHOP Marketplace. This is a health insurance marketplace specifically designed for small businesses. It allows you to offer affordable health insurance to your employees and provides access to some tax credits to help offset the cost.

Here’s the kicker—you’re required to offer coverage to at least 70% of your full-time employees if you want to use the SHOP Marketplace. So, it’s not a “pick and choose” situation. But, if you’re offering health insurance, this could be a pretty cost-effective way to do it, while also benefiting from the tax savings.

What Happens If You Have 50+ Employees?

Now, if your business grows beyond 50 employees, things change. You are then considered a large employer under the ACA, which means you must offer health insurance to your full-time employees. And if you fail to do so, you could face penalties. But don’t worry—if your business is growing, you’ve got time to prepare and plan for these changes.

For those of you who are already at 50 employees or planning to get there, it’s a good idea to start looking into health insurance options now to ensure you’re compliant and ready to offer coverage when the time comes.

How Can Health Insurance Benefit Your Business?

Offering health insurance isn’t just about the financial savings or staying compliant with the law. There are tangible benefits that can improve your business operations:

  • Increased Productivity: Healthy employees are more productive. When people have access to the care they need, they are less likely to miss work due to illness.
  • Positive Company Culture: When employees know their employer cares about their well-being, it creates a positive and supportive company culture, which boosts morale.
  • A Competitive Edge: In a competitive job market, offering health insurance gives you an advantage over companies that don’t. It shows your team you’re invested in their health and future.

What If I Can’t Afford Health Insurance for My Employees?

I get it—health insurance can be expensive, especially for small businesses. But you still have options. If offering health insurance seems like a stretch for your budget, don’t fret. There are other ways to support your employees, such as:

  • Health Savings Accounts (HSAs): You could help employees set up HSAs that allow them to save money for medical expenses, giving them a safety net without the hefty insurance premiums.
  • Offer Flexible Benefits: You don’t have to offer traditional health insurance. Explore alternative health plans or even dental/vision benefits that could be more affordable.

Final Thoughts

The bottom line? If you’re a small business with fewer than 50 employees, you’re not legally required to provide health insurance. However, if you’re looking to attract top talent, increase retention, and provide your employees with peace of mind, offering health insurance can be a win-win. And with the SHOP Marketplace, there are ways to make it more affordable for your business.

So, whether you decide to offer insurance or not, now you know the key information to make an informed decision for your business. I hope this article has helped clear up the confusion and given you the insights you need.

If you’re still unsure or need more information on how to get started, don’t hesitate to reach out—I’m always here to help!