What is Part A of the Employer Mandate?

Trying to make sense of ACA compliance can feel overwhelming, especially when it comes to understanding Parts A and B of the Employer Mandate and how they might affect your business. But with the right information, navigating Affordable Care Act (ACA) requirements is far more manageable.

In this article, we’ll break down what the Part A penalty is, how it affects your business, and what you can do to avoid it.

What Is the ACA Employer Mandate?

To help expand access to affordable healthcare, the federal government passed a series of reforms in 2010 collectively known as the Affordable Care Act (ACA). Among these reforms were new requirements for employers, including the Employer Shared Responsibility Provision, commonly referred to as the Employer Mandate. Under the Employer Mandate, businesses that meet the definition of an Applicable Large Employer (ALE) are required to offer health insurance coverage to their full-time employees and their dependents.

In order to comply with ACA standards, the health coverage offered must meet several key requirements:

• Minimum Essential Coverage (MEC): The plan must provide access to preventive care, emergency services, hospitalization, and other core healthcare benefits.
• Minimum Value (MV): The plan must cover at least 60% of the total allowed cost of covered benefits, so employees are not left responsible for an unreasonably high share of costs through deductibles, copays, and coinsurance.
• Affordability Requirement: To meet ACA standards, the employee’s cost for the lowest-cost, self-only coverage option must not exceed the IRS-set affordability threshold (9.02% for 2025) of their household income. (Note: This percentage is adjusted annually by the IRS.)

Learn more about how to determine if your business qualifies as an ALE here:  What is an Applicable Large Employer (ALE)?

What is Part A of the Employer Mandate?

Part A of the Employer Mandate sets the requirement for Applicable Large Employers (ALEs) to offer health coverage that meets Minimum Essential Coverage (MEC) standards to at least 95% of their full-time employees and their dependents (biological or adopted children under age 26; spouses are not included). Failing to meet this requirement can trigger the Part A penalty — officially known as the 4980H(a) penalty.

What Qualifies as Minimum Essential Coverage (MEC)?

Minimum Essential Coverage (MEC) is the ACA-defined minimum level of health insurance coverage that generally includes access to basic medical services such as preventive care, emergency services, and hospitalization. It satisfies the Employer Mandate requirements but does not necessarily include all the benefits of a comprehensive health plan.

Employers can meet MEC requirements by offering one of the following ACA-recognized coverage types:

• An employer-sponsored group health plan, including both small and large group plans
• A grandfathered health plan (in place before March 23, 2010, and has not been significantly altered to reduce benefits or increase employee costs)
• An Individual Coverage Health Reimbursement Arrangement (ICHRA), when paired with an ACA-compliant individual health insurance plan

Learn more about ACA ICHRA requirements here:  Your Guide to ICHRA Compliance

Who Must Be Offered Coverage?

The ACA requires that full-time employees and their dependents be offered employer-sponsored health coverage that meets MEC standards.

A full-time employee is defined by the Internal Revenue Service (IRS) as someone who works 30 hours or more per week, or 130 hours or more in a calendar month.

Employers are not required to offer coverage to:

• Part-time employees: Work fewer than 30 hours per week
• Seasonal employees: Work fewer than 120 days in a calendar year
• Independent contractors: Self-employed individuals who provide services to your business (Reported on IRS Form 1099-NEC)

Misclassifying employees or failing to notice when variable-hour workers reach full-time status can quickly drop you below the 95% coverage threshold and trigger costly penalties. Keeping accurate records, tracking employee hours consistently, and offering coverage as soon as someone qualifies is the best way to avoid compliance issues and reduce your risk of the Part A penalty.

What the Part A Penalty Could Cost Your Business

The Part A penalty can add up quickly, especially for larger employers. In 2025, the annual penalty is $2,900 per full-time employee. However, the IRS assesses the penalty amount monthly, not annually. That breaks down to a monthly penalty of $241.67 per full-time employee.

The IRS calculates the penalty based on your total number of full-time employees (minus the first 30 employees), not just the ones you failed to cover.

If you fall below the 95% coverage threshold at any point during the year, and at least one full-time employee receives a premium tax credit through the Marketplace, you could trigger the Part A penalty.

4980H(a) 30-Employee Exclusion

The Employer Mandate includes a provision that allows ALEs to exclude the first 30 full-time employees from the Part A penalty calculation. This buffer helps reduce the financial burden for smaller ALEs.

How the Penalty Is Calculated

To determine your monthly Part A penalty, the IRS uses the following formula.

Formula: (Total number of full-time employees − 30) × $241.67 = Monthly Penalty

Note: The Part A penalty is only applied for the months in which your business failed to meet the 95% coverage requirement — not the entire year.

Example:

Let’s say your company has 100 full-time employees and you fail to meet the 95% requirement for three months:

1. 100 full-time employees − 30 = 70 employees subject to the penalty
2. 70 × $241.67= $16,916.90 per month
3. $16,916.90 × 3 months = $50,750.70 total penalty

The part A penalties can add up, but with the right systems in place, staying compliant and avoiding these costs is entirely within reach.