Benefits Compliance Basics for Small Employers
Where COBRA and the employer mandate begin, which notices go out to your team, and what to ask your advisor before you grow past a threshold.
Your Starting Point
For most small employers, the federal benefits rules that apply come down largely to headcount. Federal COBRA generally applies to group health plans at employers with 20 or more employees in the prior year. The employer mandate applies only to applicable large employers, which means those averaging at least 50 full-time employees, counting full-time equivalents. The IRS notes that the vast majority of employers fall below that line.
Below 20 employees, state continuation laws may apply instead, and Pennsylvania, New Jersey, and Delaware each have one. Employers who offer an ICHRA add a written notice ahead of the plan year. The sections below take these one at a time, and your advisor or attorney can confirm what applies to you.
The takeaway
Know your headcount, and know which side of 20 and 50 it falls on.
The Two Thresholds, Explained
COBRA and the employer mandate are separate federal rules with separate triggers. Here is what each one asks of you.
COBRA continuation coverage
Who it applies to: group health plans sponsored by employers with 20 or more employees in the prior year.
What it does: lets employees and their families keep their coverage after events such as a job loss or a cut in hours. It usually lasts up to 18 months, and certain life events can extend it to 36.
Who pays: the former employee usually pays the full premium, up to 102 percent of the plan's cost, unless you agree to cover some or all of it.
Timing to know: employees have 60 days to elect COBRA. Employers and plans also have notice duties, including a general notice within 90 days after an employee enrolls.
The employer mandate
Who it applies to: applicable large employers, meaning those with an average of at least 50 full-time employees, counting full-time equivalents, in the preceding calendar year.
What it asks: offer affordable coverage that provides minimum value to full-time employees and their dependents, or potentially make a payment to the IRS.
Who counts as full-time: an employee averaging at least 30 hours of service a week, or 130 hours a month.
Worth knowing: the IRS says the vast majority of employers fall below this line, and that employers should not make a payment without first being contacted by the IRS.
Both rules look back at your workforce in the prior year, so growth you plan for this year can change what applies to you next year.
Notices Employers Give
Several notices go out to your team over a year. Here are five that come up often, with what each one is for and when it goes out. Not every notice applies to every employer.
COBRA general notice
What it does: gives an overview of COBRA rights and eligibility.
When: within 90 days after an employee enrolls in the health plan.
Notice of a qualifying event
What it does: starts the COBRA election process after events such as a termination or a cut in hours.
When: the employer notifies the plan within 30 days. The plan then sends the election notice, which gives the employee 60 days to elect coverage.
ICHRA notice
What it does: explains the benefit and the employee's options when an employer offers an ICHRA.
When: at least 90 days before the plan year starts. New hires receive theirs when they become eligible.
Marketplace coverage options notice
What it does: gives new employees written information about the Health Insurance Marketplace and the coverage you offer.
When: the Department of Labor treats it as given at hire if it goes out within 14 days of the employee's start date.
Medicare Part D creditable coverage notice
What it does: tells Medicare-eligible people covered by your plan whether its prescription drug coverage is creditable. A disclosure to CMS is also required.
When: every year, typically before October 15, when Medicare's annual enrollment period begins.
Your plan administrator or advisor can keep a notice calendar for your plan, so none of these slip through.
Questions for Your Advisor or Attorney
The rules look simple on paper and get specific fast. These six questions help you turn this overview into a plan for your business.
Where does our headcount put us today?
Bring your employee list with hours worked. A good answer places you on each side of the 20 and 50 lines, using the right counting method for each.
Which notices apply to our plan, and when do they go out?
Ask for a short calendar, so each notice has a date and an owner.
Does a state continuation law apply to us?
Below 20 employees, state rules can step in. Ask how they work where you operate, since Pennsylvania, New Jersey, and Delaware each have their own.
Who is our plan administrator, and what do they handle?
COBRA notices and deadlines depend on this role. You want to know whether it is you, your insurer, or an outside administrator.
What changes if we grow past 20 or 50 employees?
Ask for a plain list of new obligations at each threshold, so you can plan hiring and budgets around them.
If we offer an ICHRA, what do we owe our employees?
Ask about the written notice, its timing, and who prepares it, so it is ready ahead of the plan year.
More Compliance Questions
Who qualifies for COBRA coverage?
Employees and their families who would otherwise lose group health coverage after a qualifying event. For an employee, those events include a termination for any reason other than gross misconduct and a reduction in work hours. Spouses and dependent children can qualify too, including after a covered employee's death.
Do part-time employees count toward the 20-employee COBRA threshold?
Yes. Both full-time and part-time employees count, and each part-time employee counts as a fraction of a full-time employee. The Department of Labor's example is that someone working 20 hours a week counts as 0.5.
Can an employer deny COBRA after a firing?
A termination for gross misconduct is not a qualifying event, so COBRA generally would not be available in that case. A termination for any other reason is a qualifying event. Check with your attorney before treating a termination as gross misconduct.
Can part-time employees push me over the 50-employee line?
Yes. The count of 50 includes full-time-equivalent employees, so part-time hours can add up even when few people work full time. The offer of coverage under the employer mandate is required for full-time employees and their dependents.
What does "affordable" mean under the employer mandate?
Coverage is affordable if the employee's required contribution for self-only coverage does not exceed a set percentage of household income, which is adjusted each year. The IRS set it at 9.96 percent for plan years beginning in 2026.
What does "minimum value" mean?
A plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits.
This content is provided for informational purposes only and does not constitute legal or tax advice. Please consult your legal or tax advisor to determine how regulations apply to your situation.
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Disclosures
We are compensated by the insurance carriers for policies you choose through us. There is no direct cost to you. Compensation may vary by carrier and product. Information on this page is for educational purposes and does not constitute legal, tax, or accounting advice. Please consult your professional advisors about your specific situation. Tax treatment of ICHRA reimbursements can vary by employer and employee. We are licensed to advise clients in Pennsylvania, New Jersey, and Delaware. Contact us to confirm availability in other states.
