California Small Business Health Insurance Requirements

California Small Business Health Insurance Requirements: What Employers Need to Know in 2025

As a California small business owner, providing health insurance to your staff can be a game-changer—not only for the well-being of your team, but also for the growth and longevity of your business. But many owners are not sure if they must offer health insurance, what the legal requirements are, and how to go about obtaining the right coverage.

Let’s demystify the California small business health insurance mandates for 2025, what they require of your company, and how you can remain compliant while showing your workers the love.

Must Small Businesses in California Provide Health Insurance?

The quick answer is: it depends on business size.

Based on the Affordable Care Act (ACA), employers of 50 or more full-time equivalent (FTE) employees must provide minimum essential coverage (MEC) to 95% or more of their full-time employees, or they might be subject to penalties. That is a requirement from the federal government that reaches across the board, including the state of California.

But if your company has fewer than 50 FTEs, you are not required by law to offer health insurance. Nevertheless, most small business owners in California continue to provide coverage in order to remain competitive, attract the best employees, and take advantage of beneficial tax credits.

Who Qualifies as a Full-Time Equivalent (FTE) Employee?

A full-time employee works at least 30 hours a week. To determine your total number of FTEs, you must also calculate the part-time employees by adding up their combined total of work hours and expressing them as full-time equivalents.

Two part-time employees who work 15 hours a week each = 1 FTE.

If you have 50 or more FTEs, you are an “Applicable Large Employer” (ALE) and are required to comply with ACA health coverage requirements.

Health Insurance Alternatives for Small Businesses in California

Offering health insurance is a big advantage, whether mandatory or not. California offers several alternatives that are specifically targeted for small businesses:

Covered California for Small Business (CCSB):
CCSB is the government’s official marketplace for small group health insurance. It provides access to top insurers such as Kaiser Permanente, Blue Shield of California, Health Net, and more. Plans are economical, ACA-approved, and include potential tax credits.

Private Brokers or Insurance Companies:
You may also deal with a licensed insurance broker or buy group plans directly from insurance companies. Brokers have access to various providers’ offerings and can help customize a plan for your company’s requirements.

Professional Employer Organizations (PEOs):
PEOs provide bundled HR services, including employee benefit plan access that may be inaccessible to very small businesses otherwise.

Small Business Tax Incentives

If your business has fewer than 25 FTEs, has average annual wages below a certain amount (about $58,000 per employee), and pays at least 50% of employee premiums, you can qualify for the Small Business Health Care Tax Credit. This credit can pay up to 50% of your premium contributions, so it can be much more affordable to purchase good coverage.

Penalties for Not Offering Insurance (If Required)

If your business is categorized as an ALE and does not provide coverage, you may be subject to the Employer Shared Responsibility Payment (ESRP) penalty under the ACA. This penalty is activated if even a single employee buys coverage on the individual marketplace and claims a subsidy.

The penalty in 2025 will be approximately $2,970 per employee, after deducting the first 30 from the total.

Why Provide Health Coverage Even If It’s Voluntary?

Recruit and retain the best talent
Increase employee satisfaction and loyalty
Enhance productivity due to improved health outcomes
Benefit from tax savings and credits
Enhance your company’s reputation

In a competitive job market such as California’s, providing health insurance—even if not required—can be a huge advantage for your business.

Final Thoughts

Knowing California small business health insurance requirements is key to remaining compliant, competitive, and compassionate as an employer. Although not all small businesses are required by law to offer coverage, doing so can be a boon to your business in major ways—from tax benefits to employee morale.

Whether you’re just starting out or considering an upgrade to your existing plan, now is the ideal time to look at your choices and invest in the health and future of your team.