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HR Glossary

What will I learn?

  1. What is ACA compliance?
  2. Which employers must comply with the ACA?
  3. What are the requirements for ACA?
  4. What is an ACA penalty notice?

HR Glossary

ACA compliance

What is ACA compliance?

ACA compliance refers to an employer's obligation to adhere to the rules set by the Affordable Care Act (ACA). Employers who meet certain criteria are responsible for providing minimum essential health coverage (MEC) through a group health plan (GHP). This ensures that employees have access to affordable healthcare and protects employers from federal penalties.

Which employers must comply with the ACA?

Any applicable large employer (ALE) must comply with the ACA. An employer is considered an ALE if they employed an average of at least 50 full-time employees, including full-time equivalent (FTE) employees, on business days during the preceding calendar year. When determining ALE status, employees of related companies, such as those within the same controlled group of corporations or affiliated service group, are treated as employees of a single employer.

To remain compliant, ALEs must offer health coverage to at least 95% of their full-time workforce and their dependents. 

What are the requirements for ACA?

Employers are required to inform employees about:

  • Available health plans and benefits
  • Coverage limits and cost-sharing
  • Employee eligibility and enrollment timelines
  • Clear communication helps employees make informed benefit decisions and reduces compliance risks.

Beyond communication, employers must also ensure their plans meet three key standards:

  1. Minimum essential coverage (MEC): The plan offered must qualify as MEC, meaning it meets the ACA's basic federal coverage standards.
  2. Affordability: Health plan coverage is considered affordable if the employee's contribution to the plan remains within a set percentage of their household income for the taxable year. This affordability test focuses on the portion of the annual premiums for self-only coverage.
  3. Out-of-pocket maximums: Employers must review their plan's out-of-pocket maximum to make sure it complies with ACA limits.

What is an ACA penalty notice?

An ACA penalty notice is issued by the IRS when an employer fails to meet ACA requirements. Penalties may be triggered if coverage is not offered to enough eligible employees, is unaffordable, or if required reporting is incomplete or late. These penalties are typically assessed on a per-employee, per-month basis.