Do California Employers Have to Offer Health Insurance?

California employers are required to offer health insurance only if they averaged at least 50 full-time equivalent employees during the prior calendar year. Below that threshold, no federal or state law forces you to provide a group health plan, though smaller employers who do offer coverage still have continuation and reporting duties. At or above 50, the Affordable Care Act’s employer shared responsibility rules apply, and the plan you offer has to meet specific tests for who’s covered, what it costs employees, and what it pays for.¹

How to Count to 50

The count isn’t your payroll on a given day. Take each month of the prior calendar year, add the number of full-time employees (those averaging 30 or more hours per week) to the full-time equivalent count derived from part-time hours, then divide the total by 12.² A restaurant with 35 full-time cooks and enough part-time servers to push the combined figure over 50 is an Applicable Large Employer, even though no single job category alone would qualify.

Common ownership matters. If a parent company controls two subsidiaries — one with 40 full-time employees and one with 25 — the 65 workers are combined, and both entities are treated as part of an Applicable Large Employer.² Penalties, if any, are still assessed on each entity separately.

The Seasonal Worker Exception

If your headcount only crossed 50 because of seasonal hires, you may escape the mandate. The exception applies when your workforce exceeded 50 full-time equivalents for 120 days or fewer during the year and the workers responsible for the overage were seasonal — holiday retail staff, harvest crews, and the like.² Both parts have to be true. A year-round staff of 48 that bumps up to 55 for four months of seasonal help is probably fine. Permanent hires who happen to arrive in the summer are not.

Who Counts as Full-Time

A full-time employee is anyone averaging at least 30 hours of service per week, or 130 hours per month. Hours of service include time you paid for even when the employee wasn’t working: vacation, sick leave, holidays, jury duty, and similar paid absences all count.³

Employees with predictable schedules are easy. Variable-hour workers require more work. The IRS allows a look-back measurement period of 3 to 12 months, chosen by the employer, during which you track actual hours. If the employee averaged 30 or more per week over that window, you have to treat them as full-time during a corresponding stability period and offer them coverage, even if their hours later drop.⁴

New hires clearly expected to work full-time (a salaried manager, for example) are full-time from day one. When a new hire’s expected hours are genuinely uncertain, an initial measurement period of up to 12 months plus an administrative period of up to 90 days is allowed, but the combined window can’t extend past the last day of the first calendar month beginning on or after the employee’s one-year anniversary.⁴

Watch worker classification. Independent contractors don’t count toward the 50, but California’s AB 5 makes contractor status hard to sustain. Misclassifying employees as contractors doesn’t just create wage-and-hour exposure; it can also mean you’ve been undercounting your workforce for ACA purposes and were an Applicable Large Employer all along.

What the Plan Has to Look Like

Offering something called health insurance isn’t enough. The plan has to satisfy three separate requirements, and failing any one of them can trigger a penalty even though you offered coverage.

It has to be minimum essential coverage. It has to be affordable. And it has to deliver minimum value, meaning the plan pays at least 60% of the total allowed cost of benefits. Most major-carrier group plans clear the minimum value bar comfortably; skinny plans limited to preventive care often don’t.

Affordability is measured against the employee’s cost for the cheapest self-only option you offer. For plan years beginning in 2026, the employee’s required contribution cannot exceed 9.96% of household income.⁵ Because employers rarely know their workers’ household finances, the IRS provides three safe harbors: W-2 wages, rate of pay, or the federal poverty line. Applying a safe harbor correctly protects you from penalty even if the coverage turns out to be unaffordable for a particular employee’s actual household income.

The waiting period before coverage begins is capped at 90 days from the date a full-time employee becomes eligible.⁶ Many employers use “first of the month following 60 days of employment,” which sits safely under the ceiling.

Dependent coverage has to be offered, but you’re not required to pay for it. The ACA obligation stops at making enrollment available to dependents; most California employers subsidize part of the dependent premium to stay competitive, but that’s a market decision, not a legal one.

Penalties for Falling Short

There are two separate penalties, and which one applies depends on how you missed.

Not Offering Coverage at All

If you fail to offer minimum essential coverage to at least 95% of your full-time employees in any month, and even one full-time employee gets subsidized coverage through Covered California, the penalty is assessed on your entire full-time workforce minus the first 30 employees.⁷ For 2026, that’s $3,340 per full-time employee per year. An employer with 100 full-time workers and no plan would face up to $233,800 in annual exposure (70 employees × $3,340).

Offering a Plan That Doesn’t Qualify

If you offered coverage to enough employees but the plan fails the affordability or minimum value tests, the penalty only applies to each employee who actually receives a premium tax credit through Covered California. For 2026, that’s $5,010 per affected employee per year.⁷ The total is capped so it never exceeds what the no-offer penalty would have been.

Both penalties are assessed monthly, so cleaning up mid-year limits the damage. The IRS notifies employers through Letter 226-J before finalizing an assessment, and clean records showing who was offered what, and when, are often enough to resolve the notice without payment.

If You Have Fewer Than 50 Employees

Small California employers are not required to offer health insurance, and no federal penalty applies for choosing not to.¹ Many small employers offer coverage anyway because benefits are a competitive necessity in the California labor market, but that’s a business decision.

Small employers who do offer coverage may qualify for a federal tax credit if they have fewer than 25 full-time equivalent employees, pay average annual wages below an inflation-adjusted cap, and cover at least 50% of employee-only premium costs. The maximum credit is 50% of the employer’s premium expenses (35% for tax-exempt organizations) and is available for two consecutive tax years, but only if the coverage is purchased through Covered California for Small Business.⁸

One California-specific obligation reaches down to smaller employers: continuation coverage. Federal COBRA applies to group health plans at employers with 20 or more workers.⁹ Cal-COBRA fills the gap for group health plans covering 2 to 19 employees, so a small California business that offers coverage still has to let former employees and other qualified beneficiaries continue the plan for up to 36 months.¹⁰ Employees who exhaust 18 months of federal COBRA at a larger employer can also roll into Cal-COBRA for another 18 months to reach the same 36-month total. Standalone dental or vision plans available under federal COBRA don’t have to continue on the Cal-COBRA side.

California Reporting and the Individual Mandate

Applicable Large Employers file IRS Forms 1094-C and 1095-C to document what coverage was offered, to whom, and for which months.¹¹ California requires the same forms to be filed with the Franchise Tax Board, which uses them to enforce the state’s individual coverage mandate.¹² For 2025 returns, paper submissions to the IRS are due March 2, 2026 and electronic filings are due March 31, 2026; employers filing 10 or more returns must file electronically.¹³

California residents who go without qualifying coverage owe a state tax penalty. For 2025, it’s the greater of $950 per uninsured adult ($475 per child) or 2.5% of household income above the filing threshold.¹⁴ The individual mandate does not obligate you as the employer, but it changes employee behavior around your plan: workers who decline coverage without another qualifying source will feel it on their state return. Covered California also relies on your 1095-C filings to check whether employees who received marketplace subsidies actually had access to affordable coverage from you. Late or incomplete filings can produce mistakenly issued subsidies, and those subsidies can circle back as inadequate-coverage penalties on your account.

1
Internal Revenue Service. Employer Shared Responsibility Provisions
2
Internal Revenue Service. Determining if an Employer Is an Applicable Large Employer
3
Internal Revenue Service. Identifying Full-Time Employees
4
Internal Revenue Service. Notice 2012-58 – Determining Full-Time Employees for Purposes of Shared Responsibility for Employers Regarding Health Coverage
5
Internal Revenue Service. Rev. Proc. 2025-25
6
eCFR. 45 CFR 147.116 – Prohibition on Waiting Periods That Exceed 90 Days
7
Office of the Law Revision Counsel. 26 USC 4980H – Shared Responsibility for Employers Regarding Health Coverage
8
Internal Revenue Service. Small Business Health Care Tax Credit and the SHOP Marketplace
9
U.S. Department of Labor. FAQs on COBRA Continuation Health Coverage for Workers
10
California Department of Managed Health Care. Keep Your Health Coverage (COBRA)
11
Office of the Law Revision Counsel. 26 USC 6056 – Certain Employers Required to Report on Health Insurance Coverage
12
Franchise Tax Board. Report Health Insurance Information
13
Internal Revenue Service. 2025 Instructions for Forms 1094-C and 1095-C
14
Franchise Tax Board. Health Care Mandate – Personal