Employer Mandate Penalties and Affordability

The ACA requires applicable large employers (ALEs) – those with 50 or more full-time employees (FTEs) and full-time equivalents – to offer affordable minimum value coverage to substantially all FTEs (those working 30 hours or more per week) and their dependents. The requirement, known as the employer mandate or employer shared responsibility provision, has been in effect since 2015.

Failure to comply with the employer mandate can result in two potential penalties: Penalty A (for failure to offer coverage to the required percentage of FTEs) and Penalty B (for failure to offer coverage that is of minimum value and affordable). Although an employer’s fact pattern may show that both failures exist simultaneously, Penalty B is triggered only if Penalty A does not also apply to the same reporting month.

Employers that are subject to the ACA employer mandate must understand the definition of several key terms to ensure compliance with the mandate. These terms are described in greater detail below in the respective sections on Penalty A and Penalty B. They are also highlighted for easy reference in Appendix A, Employer Mandate Flowchart. The flowchart provides a high-level overview of the fact patterns that make an employer vulnerable to employer mandate penalties.

Special rules – described in further detail below – apply to employers that are part of a controlled group (i.e., share common ownership or control). In addition, although generally expressed as an annual amount, both penalties are calculated and assessed on a monthly basis. See Appendix B, Employer Mandate, for details of the penalty amounts and affordability threshold. See Appendix C, Sample ACA Affordability Safe Harbor Calculations, for illustrations of the three affordability safe harbors.

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