Offering employer-sponsored health insurance keeps your employees healthy and happy. If you’ve decided to provide coverage, you might be wondering, “What percentage of health insurance do employers pay?” Learn what you must pay as an employer, and look at recent data on average costs.
What percentage of health insurance do employers pay?
The employer portion of health insurance you pay varies depending on your business’s size and the type of coverage. There is no single answer to the question How much do employers pay for health insurance? But, there are average amounts to consider.
Most insurance companies require employers to cover at least half of the employee’s premium. This makes insurance more affordable for employees.
When you’re considering what percentage of health insurance to pay, keep the following in mind:
- You might not be required to offer employee health insurance in your small business employee benefits
- Depending on your plan, you’ll have more or less flexibility in deciding how much to contribute
- Covering employee spouses and dependents raises costs, but might be necessary
- Depending on your contributions, you could receive a refundable tax credit
- You must choose a contribution amount that fits your budget
Do employers have to offer insurance?
The Affordable Care Act (ACA) sets the rules for employer-sponsored health insurance. Whether you have to provide coverage depends on your business size.
If your business is above the ACA size requirement, you must offer insurance. If you are considered a small business, you do not have to comply. You can still offer coverage to your employees.
You are a small employer if you have 50 employees or fewer. The workers can be full-time employees or full-time equivalent. Full-time equivalent employees work an average of 30 hours per week.
You need to calculate full-time equivalents if you have part-time employees. Add up the number of hours that part-time employees work. Divide the sum by the number of part-time workers.
Add this number to the total full-time workers employed. If the number is 50 or fewer, you are a small business and are not required to offer health insurance. If the number is more than 50, you must provide insurance.
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Which employees must employers cover?
If you are required by the ACA to offer health insurance, you must cover full-time employees.
If you offer group coverage to any full-time employee, you must offer it to all full-time employees. A full-time employee is defined as working 30 or more hours per week.
Although you are not required to, you can offer health insurance for part-time employees. Part-time employees work an average of 20 to 29 hours per week. If you offer coverage to one part-time employee, you must offer it to all part-time employees.
You are not required to cover several other types of workers, including independent contractors, seasonal employees, and temporary employees. For a full list, see this guide.
Do employers have to cover family members?
With a group insurance plan, employers usually offer coverage to legal spouses and dependent children.
The ACA requires you to provide dependent coverage to age 26. If you do not, you might have to pay a penalty. You can choose to cover dependents over 26 years old, but you are not required to.
Employers are not obligated to pay premiums for dependents. However, you can contribute towards premiums for dependents. Or, you can require employees to pay the full premium cost for dependents.
You are not required to cover your employees’ spouses. Some companies decline coverage when a spouse can receive insurance from their own employer. Or, they might charge the employee more to cover the spouse.
Can employers receive a tax credit for paying premiums?
As a small business owner offering health coverage, you might be eligible for a small business health insurance tax credit. The percentage of health insurance you pay plays a role in whether you can receive the credit.
To be eligible, you must meet the following requirements:
- Pay premiums under a qualifying arrangement (generally, that means at least 50%)
- Have fewer than 25 full-time equivalent employees
- Pay average annual wages of less than $50,800 per full-time employee
- Buy coverage through the SHOP Marketplace
The maximum credit amount is 50% of your contribution towards the employee premiums (35% for non-profits). The credit is available for a maximum of two years.
The size of the tax credit is based on a sliding scale. Those with lower employee wages get a larger credit.
The SHOP Marketplace can calculate an estimated credit that is paid to your insurance company. The advanced tax credit lowers the amount you pay on monthly premiums. You can also choose to receive the entire tax credit when you file your tax return.
If the credit amount is more than your tax liability, you receive a refund for the difference. If you received an advanced tax credit and your allowable credit is less than estimated, you pay the difference or subtract it from your refund.
Patriot’s online payroll software helps you accurately deduct premiums from employee paychecks. Take advantage of our free setup and support. Then, complete payroll in three easy steps. Try it for free today!
This article has been updated from its original publication date of November 6, 2017.
This is not intended as legal advice; for more information, please click here.