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A Guide to ACA Compliance Requirements

Hiring within the US? Discover all the ACA requirements for employers, including coverage, minimum value, and tax reporting

Jemima Owen-Jones
Written by Jemima Owen-Jones
April 18, 2024
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Key takeaways

  1. Most US employers have to provide workers with health insurance and report their plans to the IRS to stay ACA compliant.
  2. Thorough compliance with ACA reduces the risk of penalties, legal action, and damage to your company’s reputation.
  3. You can navigate ACA requirements confidently by leveraging the right software and consultancy solutions.
Compliance with the ACA should be a top priority for US employers. You can ensure your health insurance benefits meet the right standards while avoiding financial risks like penalties or legal action.

The obstacle is that the ACA is a 900-page-long document that frequently undergoes updates and revisions. Even large HR departments may struggle to understand and address all its policies. 

Our article explores all the essential ACA rules for employers, including coverage, reporting, and tax filing. We also look at the best ways to stay compliant using an HR and payroll solution like Deel.

What does ACA stand for, and what does it mean?

ACA stands for ‘affordable care act’. It’s a law reform that requires most US citizens to arrange essential medical coverage through their employers, private insurers, or federal programs. 

If you hire within the US, you’re probably subject to ACA requirements. You may have to provide health insurance, meet set standards, and report this information annually. 

Several government bodies oversee and enforce the ACA, especially the:

There are significant penalties for failure to comply with ACA requirements. The exact amount depends on your headcount and the nature of the infraction. For example, Dave & Buster’s paid $7.42 million USD in a class-action lawsuit involving 1200 of their former employees. 

Which US employers must comply with the ACA?

All applicable large employers (ALEs) must provide health insurance to at least 95% of their workforce. These plans must meet all the standards set by the ACA. You count as an ALE employer if you hire an average of 50 or more full-time employees in a calendar year — or the equivalent.

To determine whether you’re an ALE:

  • Calculate the combined hours worked by all your part-time employees
  • Divide the total by 120
  • Add the total to your number of full-time workers

If the number is 50 or over, you’re probably an ALE. 

Note that the ACA bases these requirements on your workforce size, not your location. Global companies count as ALEs if they employ 50 or more full-time, permanent workers in the US (or equivalent). That’s the case whether they work in an office or remote, distributed teams. 

Small businesses must comply with ACA if they choose to provide health insurance to employees. They have to meet the same standards but are subject to different tax and reporting laws. 

Several US states have policies that go beyond the ACA requirements. Employers must follow whichever legislation grants their workers the most rights and protections in these cases. 


What are the ACA requirements?

There are a variety of ACA compliant plans to choose from in the US. However, companies must also follow the rules and meet the set standards to adhere to the law. 

Here’s a breakdown of the ACA requirements for large employers and small businesses:

Condition ALEs
(>50 employees or equivalent)

Small businesses
(<50 employees or equivalent)

ACA-compliant health plan Mandatory Voluntary
Minimum essential coverage ✔️ ✔️
Minimum value ✔️ ✔️
Affordable ✔️ ✔️
Liable to pay Employee Shared Responsibility Payments ✔️
Eligible for SHOP ❌ — unless the company has 100 employees or less in some states ✔️
Eligible for tax credits ✔️ — if the company has 25 employees or less
IRS Forms 1094-C and 1095-C ✔️ ❌ — unless self-insured
IRS Forms 1094-B and 1095-B ✔️

In this section, we’ll explore what ACA compliant medical insurance plans look like in more depth.

Minimum Essential Coverage (MEC)

Any plans you offer must meet MEC criteria, meaning they must cover a broad range of basic healthcare services for employees and their dependents. At a minimum, they should include:

  • Outpatient care
  • Emergency services
  • Hospitalization
  • Maternity and newborn care
  • Pediatric care (including vision and dental)
  • Mental healthcare
  • Prescriptions
  • Rehabilitation services
  • Laboratory services
  • Chronic disease management

Insurance providers should indicate whether they’re ACA compliant. However, it’s best to review the plans and double-check they meet requirements. The ACA penalty for failing to meet MEC criteria is $2970 per employee per year.

Minimum value

Your health insurance plan must cover at least 60% of the total costs for 95% of your workforce. This policy ensures your employees can cover their share of the costs.

If you don’t meet all these ACA criteria, you must pay an employer shared responsibility payment (ESRP) instead. This fine is equal to your total number of full-time employees times by $2000. If your coverage varies throughout the year, the IRS calculates the amount by the month.


Employee contributions can’t be higher than 9.5% of their household income in 2024. The IRS decreases this percentage every year with inflation.

As you’re unlikely to know each worker’s household income, calculate the threshold using one of the approved methods:

  • The salary stated on an employee’s W-2 form
  • The hourly or monthly rate of pay
  • The federal poverty line

It’s best not to set employee contributions too close to the threshold. If the IRS finds you don’t meet the affordability criteria, they may require you to pay ESRP penalties.

Tax reporting

The ACA requires ALEs to report on their health insurance plans annually. Using this information, the IRS verifies your compliance and determines each worker’s eligibility for premium tax credits.

ALEs must submit Form 1094-C and Form 1095-C to the IRS annually. These forms request details about the plans you offer and which employees you include on them. The deadline is February 28th for paper filing and March 31st for electronic submissions.

You must give your employees a copy of Form 1095-C. The deadline for giving them this form is around March each year.

ACA reporting requirements are different for small businesses. They usually have to file Form 1094-B and Form 1095-B instead so the IRS can check whether employees are entitled to tax credits. 

Employee distribution of health documents

You’re responsible for presenting all the relevant information and documents to your workers. These include notices about the options you provide and what’s available through the Health Insurance Marketplace. 

All employers must distribute a summary of benefits and coverage (SBC) to plan participants annually. The insurance provider may issue this document.

If you revise your benefits plans during the year, the DOL says you must give participants 60 days' notice. Failure to report any changes may result in penalties.

Businesses must also report the full costs of any benefits on each employee’s W2 form. The ACA has this provision to promote transparency in the workplace. When people know the true value of their medical coverage, they can make more informed decisions about healthcare spending.

Small business health options program (SHOP)

SHOP is a part of the Health Insurance Marketplace. The program gives small businesses more flexibility over how they administer benefits, including what types of coverage they offer and when they start plans. If you have 25 or fewer employees, you may also be eligible for a tax credit.

To be eligible for SHOP, your company must:

  • Have 50 or fewer employees (100 in some states)
  • Offer coverage to all full-time workers
  • Be located in the same state as the SHOP plan

Some US states also require you to have a 70% participation rate. That means this ratio of employees must either join your plans or already have another type of coverage.

Self-insured plans

Employers may assume the financial risk of providing health care benefits to employees and pay their claims. These plans are still subject to federal requirements, including the ACA. 

ALEs have to file forms 1094-C and 1095-C even if they don’t have any full-time employees. However, the IRS isn’t necessarily checking you. They need this information to monitor which individuals don’t have minimum essential coverage.

Appeals process

Businesses must establish a fair and transparent appeals process if they offer healthcare benefits. You must also outline the process in writing and distribute it among employees. If any participants require information related to an ongoing dispute, you have to give them access.

The appeals process benefits employers as much as workers. You have the opportunity to resolve issues and clarify misunderstandings before they escalate. Even if external claims procedures rule in your favor, they’ll still be time-consuming, stressful, and potentially cause damage to your reputation.

How to maintain compliance with the ACA

Businesses must remain proactive to keep updated with the ACA requirements. Here are some steps you can take:

  • Stay updated with the ACA: Read the latest releases from the DOL and IRS. You could use an alert like Deel’s Compliance Hub to get updates without having to do the research
  • Conduct regular reviews: Check your healthcare benefit plans upon renewal. Focus on whether they still meet the minimum value and affordability criteria, as these change annually
  • Train your HR team: Ensure your department knows about the ACA requirements and how to meet them
  • Use an employee self-service portal: Rather than sending benefits policies to and fro, store them on a centralized platform. You can have workers access them there and reduce the risk of them missing notices. Deel lets you track whether everyone’s read and signed all the paperwork via the dashboard
  • Collect employee feedback: Negative responses may indicate a potential compliance issue. You can use anonymous surveys to encourage employees to speak honestly
  • Monitor staffing levels: If you’re a small business, keep a rolling tally of the total hours your team works. You need to know as soon as you’re approaching the 50-person limit
  • Leverage reporting software: Payroll software can help you track important data like contributions, deductions, and hours worked. Deel is specially designed for global teams, so we can help companies manage US subsidiaries from afar
  • Consider a professional employer organization (PEO): A PEO is a third-party provider like Deel that manages all your HR, payroll, and benefits administration. You can benefit from our advice and negotiate better deals for ACA compliant health insurance with providers

Keep ACA compliance simple with Deel

The ACA is an unavoidable part of hiring within the US. Businesses of all sizes have to offer health insurance to remain competitive, and the legislation affects most plans.

Nothing says that employers have to handle ACA compliance alone, though. Deel’s US payroll solution can help you navigate these complex requirements and notify you about any upcoming changes. If you’d prefer a hands-off approach, our PEO service lets us assume all responsibility for payroll, tax filing, and benefits administration.

Think you could benefit from Deel’s compliance management? Book a call with the Deel team to learn more.

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