Employers subject to the Affordable Care Act’s employer mandate (generally, those with 50 or more full-time equivalents) are required to offer qualifying, affordable health insurance coverage to substantially all full-time employees in order to avoid significant penalties. Note that “full-time equivalents” include both full-time employees, as well as part-time or temporary employees, if the total number of hours worked is sufficient. It is also important to note that the number of employees is determined on a “controlled group” basis, meaning that even employers with a sufficient level of common ownership are counted together, even if their business operations are unrelated.

In order to comply with the “affordability” requirement, a covered employer must ensure that the employee’s share of the premium for the lowest option providing employee-only health coverage is less than a specified percentage of the employee’s pay. The specific percentage is set each year by the Internal Revenue Service (IRS).

The IRS has announced that the affordability percentage for 2020 will be 9.78%. This represents a reduction from the applicable percentage for 2019, which was 9.86%. Although this seems like a minor difference, it means that premium structures which previously met the “affordability” requirement may not be compliant in 2020. Failing to take this change into account during the annual renewal period could expose the employer to substantial penalties. The IRS has remained extremely active in pursuing these penalties, even as other aspects of the Affordable Care Act are eliminated or given reduced priority.