It’s one of the first questions a growing business asks, usually right after “how much would it cost?” The answer turns on one number, 50, but the way that number is counted catches a lot of employers out. Here are the rules at each size, what the penalty is if you’re over the line, and what changes once you decide to offer a plan.
The rules at every size
There’s no Texas law that requires a private employer to offer health insurance. Everything below comes from federal law, plus the Texas rules that apply once you choose to offer a plan.
| Your business | Required? | What applies |
|---|---|---|
| Just the owner | No | No small group plan. Individual coverage instead. |
| 2 to 19 employees | No | Texas small group rules, and Texas state continuation instead of COBRA. |
| 20 to 49 employees | No | Small group rules, plus federal COBRA. |
| 50+ full-time, counting part-timers’ hours | Effectively yes | You’re a large employer: an IRS penalty if you don’t offer affordable coverage, and Form 1095-C each year. |
One thing that table hides: these thresholds count people in different ways. Texas counts employees for small group, COBRA counts employees with part-timers as fractions, and the IRS counts full-time employees plus full-time equivalents. A business can be a “small employer” for one rule and a “large employer” for another, so it’s worth knowing which count you’re looking at.
Under 50 employees: it’s your choice
If you average fewer than 50 full-time employees, counting part-timers’ hours, nobody requires you to offer health insurance. Most small Texas businesses don’t. In the federal government’s 2025 survey of employers, only 28% of workplaces at Texas firms with fewer than 50 employees offered coverage, compared with 91% at firms with 50 or more.
Texas, under 50
28.2%
U.S., under 50
32.1%
Texas, 50+
91.2%
U.S., 50+
94.8%
Source: AHRQ Medical Expenditure Panel Survey, Insurance Component, 2025, via KFF State Health Facts. Share of private-sector establishments, by firm size.
That gap is also an opportunity. When fewer than a third of small employers around you offer coverage, a decent plan is one of the clearest ways to stand out when you’re hiring. If you do decide to offer one, these are the Texas rules that matter:
- You need at least two employees. Texas defines a small employer as one with an average of 2 to 50 employees in the previous year, and at least two on the first day of the plan year.
- At least 75% of eligible employees have to enroll. An eligible employee is one who usually works at least 30 hours a week. Employees who are covered elsewhere, such as on a spouse’s plan, or by Medicare or Medicaid, don’t count as eligible, so they don’t count against you.
- Texas law doesn’t set a minimum employer contribution. The Insurance Code says plainly that it doesn’t require one, but it lets carriers set their own, as long as they apply it to everyone. In our experience, carriers often require at least 50% of employee-only coverage, though they waive that minimum during the participation holiday below.
Our rule of thumb: if you want 75% of your eligible employees to join the plan, pay at least 75% of the employee-only premium. It isn’t a requirement, just the benchmark we’ve relied on for years.
If you’ve been turned down before, mark November 15 to December 15. During that window every year, carriers have to offer small group coverage without applying their participation or contribution minimums, usually for a plan starting January 1. Our guide to what group health insurance costs in Texas has the numbers to budget with.
Are you a large employer? How the IRS counts to 50
This is where most of the confusion lives. The IRS calls a business with 50 or more full-time employees an applicable large employer, and it counts part-timers too, not just the people on salary.
- Full-time means an average of at least 30 hours of service a week, or 130 hours in a month.
- Part-timers count as fractions. Each month, add up the hours of everyone who isn’t full-time, counting no more than 120 hours per person, and divide by 120. The result is your number of full-time equivalents.
- Add the two together, month by month, and average them over the year. If the average is 50 or more, you’re a large employer for the following year. So your 2027 status depends on your 2026 workforce.
- Related businesses count together. Companies with a common owner are generally combined and treated as one employer, so two 30-person companies under the same owner can make one 60-person employer.
- There’s a narrow seasonal exception. If you’re only over 50 for 120 days or fewer in the year, and the extra people are seasonal workers, you aren’t treated as a large employer.
Here’s how that plays out. Say you have 40 full-time employees and 20 part-timers who each work about 60 hours a month. The part-timers add up to 1,200 hours, which divided by 120 is 10 full-time equivalents. Forty plus ten is 50, so you’d be a large employer, even though only 40 of your people are full-time.
What the employer mandate actually requires
Once you’re a large employer, you don’t strictly have to offer a plan. What the law does is charge a penalty, which the IRS calls an employer shared responsibility payment, if your coverage falls short. There are two ways that happens, and both are only triggered when at least one full-time employee buys a Marketplace plan and gets a premium tax credit for it.
1. You don’t offer coverage to enough people. You have to offer coverage to at least 95% of your full-time employees and their children up to age 26. Spouses don’t have to be included. If you fall short, the penalty is charged on all of your full-time employees, minus the first 30, whether or not they wanted the coverage.
2. You offer coverage, but it’s not good enough. The coverage has to be affordable and has to provide minimum value. If it falls short on either, the penalty is charged only for each full-time employee who gets a premium tax credit, and it can never be more than the first penalty would have been.
| Penalty | 2026 | 2027 |
|---|---|---|
| No coverage offered to 95% (per full-time employee, minus 30) | $3,340 | $3,780 |
| Coverage unaffordable or below minimum value (per employee with a tax credit) | $5,010 | $5,670 |
To put that in numbers: a business with 60 full-time employees that offers no coverage at all, where one employee gets a premium tax credit, would owe (60 − 30) × $3,780 = $113,400 for 2027. If the same business offered coverage to everyone, but it was unaffordable for 4 employees who went to the Marketplace and got a credit, it would owe 4 × $5,670 = $22,680.
What counts as affordable and minimum value
- Affordable means the employee’s share of the cheapest self-only option you offer is no more than 10.22% of their household income for plan years starting in 2027, up from 9.96% in 2026. You can’t know anyone’s household income, so the IRS lets you test against what you do know, such as the employee’s W-2 wages or rate of pay. For someone earning $40,000 a year, 10.22% is $4,088, or about $340 a month.
- Minimum value means the plan is designed to pay at least 60% of the total cost of covered medical care, and covers physician and inpatient hospital services substantially. Almost every plan a carrier sells meets it, but some very thin plans don’t.
Large employers also have a reporting job each year: Form 1095-C for each full-time employee, and Form 1094-C to the IRS. Our compliance support covers what’s due and when.
Can you offer it to some employees and not others?
Yes, within limits. Federal rules let a plan treat groups of employees differently when the line is a genuine, job-based one that you also use for other things in the business. That includes full-time versus part-time, location, job category, or length of service. What you can never do is draw the line by anyone’s health, claims history or disability.
In practice:
- Part-timers are optional. The mandate only counts employees who work 30 or more hours a week, and Texas small group plans are built around those same full-time employees.
- Carriers set their own eligibility rules within the law, so the classes you can use depend on the plan. Check before you promise anything to a group of employees.
- Richer coverage for owners or executives gets complicated quickly. Level-funded and self-funded plans have to pass nondiscrimination tests that fully insured plans don’t currently face. Our level-funded guide explains why that matters.
Ways to help without a traditional group plan
A group plan isn’t the only way to help employees with health care costs. There are three other routes worth knowing about:
- An individual coverage HRA (ICHRA). Available to employers of any size. You give each employee a set monthly amount, and they use it, tax-free, to buy their own individual coverage. You can’t offer an ICHRA and a group plan to the same class of employees, and employees have to get a written notice at least 90 days before the plan year starts. For a January 1, 2027 start, that deadline has passed for current employees, but a plan year starting later in 2027 still works.
- A QSEHRA. For employers with fewer than 50 full-time equivalents that don’t offer a group plan to anyone. For 2026, reimbursements are capped at $6,450 for an employee alone and $13,100 with family. The IRS hadn’t published the 2027 caps as of mid-October 2026.
- The small business health care tax credit. If you have fewer than 25 full-time equivalents, pay average wages below the IRS limit, and pay at least 50% of employee-only premiums through a plan bought on the SHOP Marketplace, the credit can be worth up to 50% of what you pay. It lasts two consecutive years.
Individual premiums rose after the enhanced federal premium tax credits expired at the end of 2025, so an ICHRA or QSEHRA needs to be modeled against a real group quote before you choose one. We do that comparison as part of a quote. If an ICHRA turns out to be the better fit, we arrange it through the administrator we partner with, and a partner who specializes in individual coverage helps your employees choose their plans.
What offering a plan commits you to
Deciding to offer coverage is the big step. The ongoing work is lighter than most people expect, especially with a broker handling it:
- Plan documents for employees, including a Summary of Benefits and Coverage for each plan you offer.
- A Section 125 plan, if employees pay part of the premium, so they can pay it before tax.
- Continuation coverage when people leave. With 20 or more employees, that's COBRA. Below 20, Texas state continuation lets former employees keep an insured plan for up to nine months at their own cost.
- A yearly Form 5500, but only once the plan has 100 or more participants at the start of the plan year. Smaller fully insured plans are exempt.
- Forms 1094-C and 1095-C each year, if you're a large employer.
The bottom line
If you have fewer than 50 full-time employees, counting part-timers’ hours, offering health insurance is a choice, and in Texas a fairly uncommon one. That’s what makes it such a strong way to attract and keep good people. At 50 and above, it’s effectively required, and the cost of getting it wrong can run to six figures.
Either way, the next step is the same: find out what a plan for your team would actually cost, and how it compares with the alternatives. Call us or ask for a quote, and a person who knows the rules will walk you through your options. There’s no charge for that, and no obligation.