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Figure 7:
What defines a small employer?
Note: The ACA and the IRS use different calculations for determining the number of employees. Employers may simultaneously qualify as a small employer
under ACA, but be considered a large employer for IRS purposes. In addition, each state may use different counting rules for the purposes of pre-reform rating
and rate reviews.
SHOP Participation
Outside the Health Care
Reform Marketplaces
Exception to
Employer Shared
Responsibility/Pay or
Play Requirement
Small Employer Tax
Credit
Exception to W-2
Reporting
• Small employer
definition is 1-100, but
states can use 1-50
until 2016. Almost all
states currently use
1-50. If the Federal
government is running
the SHOP Marketplace,
the state definition (50
or 100) applies.
• If a state is running
the SHOP, the state
law rules for counting
employees apply. For
example, states might
not count part-time
employees.
• If the federal
government is running
the SHOP Marketplace,
federal rules apply that
count the sum of total
full-time employees
(30+ hours per
week) and full-time
equivalents. This is the
same rule that the IRS
uses for the employer
responsibility payment.
• Small employer
definition is 1-100, but
states can use 1-50
until 2016. Almost all
states currently use
1-50.
• The ACA counts
the average of the
total number of all
employees employed
on business days
during the preceding
calendar year. Each
employee W-2 is
considered one
employee including
part-time employees.
• Applies for ACA reform
provisions, such as
benefit mandates.
• State law rules may
also apply.
• Small employer
definition is 1-49.
• Counts the sum of total
full-time employees
(30+ hours per
week) and full-time
equivalents. This is the
same rule that will be
used in federally run
SHOP Marketplaces.
• Small employer
definition is 1-25.*
Average annual wages
must be less than
$50,000.
• Count all hours worked
for each employee (up
to 2,080 hours per
employee) and divide
by 2,080.
* Note: As of 8/26/13,
states that fewer
than 25 employees
are eligible for these
credits, however
Internal Revenue Code
Section 45R states that
the term “eligible small
employer” means an
employer which has no
more than 25 full-time
equivalent employees
for the taxable year. For
more information about
these credits, visit:
• Less than 250 W-2s in
the preceding year.
