Many small businesses don’t have enough employees to worry about the play-or-pay provisions of the Affordable Care Act (ACA). However, as your business grows, these rules can apply sooner than expected. This issue also may not be on your radar because there’s a common misconception that the repeal of ACA penalties under the Tax Cuts and Jobs Act applied to both individuals and businesses. While the individual mandate penalty was eliminated beginning in 2019, the employer shared responsibility rules are still in effect.

Don’t let ACA compliance become a blind spot for your business. Here’s what you need to know to comply with the law’s requirements.

The play-or-pay threshold

The ACA’s employer shared responsibility rules apply to applicable large employers (ALEs). In general, ALEs are businesses with 50 or more full-time employees, including full-time equivalents (FTEs). Once a business crosses that threshold, it must comply with several requirements related to employee health coverage. An employer’s size for the year is determined by the number of full-time employees plus FTEs in its prior year. The challenge is that many business owners don’t realize they’re approaching the ALE threshold until it’s too late.

First, for ACA purposes, a full-time employee generally is an individual employed on average at least 30 hours of service per week or 130 hours per month. So some employees you might consider to be part-time because they work less than 40 hours a week may be considered full-time for ACA purposes.

Second, FTEs are determined by adding all hours of service for the month for employees who weren’t full-time employees (but no more than 120 hours per employee), and dividing by 120. This can push a company into ALE status faster than expected. For example, a small company with 35 full-time employees and a significant number of part-time workers could exceed the 50-full-time-employee threshold once part-time hours are aggregated.

2 types of penalties

Under the ACA, an ALE may incur a penalty if it doesn’t offer minimum essential coverage to its full-time employees and their eligible dependents or if it offers such coverage, but that coverage isn’t affordable and/or fails to provide minimum value. The penalty is typically triggered when at least one full-time employee receives a premium tax credit for buying individual coverage through a Health Insurance Marketplace.

One of two penalty structures may apply, depending on the circumstances. First, under Section 4980H(a), a penalty may be assessed if an ALE fails to offer coverage to at least 95% of its full-time employees and their dependents. This penalty is calculated based on the total number of full-time employees, excluding the first 30. Second, under Section 4980H(b), a penalty may apply for each full-time employee who receives a premium tax credit for purchasing coverage through a Health Insurance Marketplace because the employer’s coverage is unaffordable or doesn’t provide minimum value.

Updated penalties for 2026

The adjusted penalty amounts (per the applicable number of full-time employees used to calculate the specific penalty) for failures occurring in the 2026 calendar year are:

• $3,340 (up from $2,900 in 2025) under Sec. 4980H(a), for ALEs not offering health coverage, and $5,010 (up from $4,350 in 2025) under Sec. 4980H(b), for ALEs offering coverage but that have employees who qualify for premium tax credits or cost-sharing reductions.

The IRS uses Letter 226-J to inform ALEs of their potential liability for an employer shared responsibility penalty. A response form, Form 14764, “ESRP Response”,  is included with Letter 226-J so that an ALE can inform the IRS whether it agrees with the proposed penalty. A response is generally due within 30 days. Be on the lookout for this letter so that you’re prepared to promptly review and respond if the IRS contacts you.

Considerations for growing businesses

As your workforce expands, it’s important to address the following questions:

• How close is your company to the 50-full-time-employee threshold?
• Are you properly identifying who’s a full-time employee under the ACA and calculating your number of FTEs based on part-timers’ hours?
• If your company becomes an ALE, how will it structure health coverage to satisfy affordability and minimum value requirements?
• Are your payroll and human resource systems prepared to support ACA reporting requirements, including Forms 1094-C and 1095-C?

Addressing these issues early can help ensure that expansion plans don’t come with unexpected ACA penalties.

For more information

Careful compliance with the ACA remains critical for companies that qualify as ALEs. Growing small businesses should be particularly wary as they become midsize ones. Contact us with questions about your obligations and ways to better manage the costs of health care benefits.

© 2026

In a business context, a wellness program is an employer-sponsored initiative designed to promote employees’ physical, mental and emotional well-being. These programs can take many forms, but their underlying goal is generally the same: to foster a healthier, more productive workplace.

A well-structured wellness program can also help companies manage health care benefits costs, reduce absenteeism, improve employee retention and enhance company culture. Whether your business has a program in place or is considering rolling one out, here are some fundamental building blocks to help ensure your approach is effective, practical and sustainable.

Straightforward design

Imagine a company introducing its new employee wellness program with an email that reads, “Welcome aboard! Attached is a 200-page guide, featuring a complex point system that will determine whether you qualify for incentives and a lengthy glossary of medical terminology.”

See the problem? The quickest way to derail participation is by overcomplicating the rollout. Granted, any type of wellness program will inevitably have a learning curve. But the simpler the design, the easier it will be to explain and implement. Remember that you can update and increase a program’s complexity as it becomes more ingrained in your business’s culture.

Clear communication

Strong program communication is also paramount. Write, format and organize materials clearly and concisely. Be creative with the design and language to capture employees’ interest. Just keep in mind that the content must be sensitive to the fact that the program addresses inherently personal issues of health and well-being.

If you don’t have anyone in-house who can handle these criteria, consider engaging a consultant. In addition, ask your attorney to review all program materials for compliance purposes.

Well-vetted vendors

For most companies, outside vendors provide the bulk of wellness program services and activities. These may include:

• Seminars on healthy life and work habits,
• Smoking cessation workshops,
• Fitness coaching,
• Healthful food options in the break room and cafeteria, and
• Runs, walks or other friendly competitive or charitable events.

It’s critical to thoroughly vet providers and engage only those that are skilled and qualified. Neglecting to do so could mean that, even if you create and communicate a solid program, it will likely fail once employees show up to participate and are disappointed by the experience. Quality partnerships build credibility — and lasting engagement.

A strategic investment

Developing a wellness program may be a wise decision for both your employees and business. If you’re just getting started, build it on the fundamentals mentioned. And if you already have a program up and running, closely monitor participation and outcomes so you can make informed adjustments that enhance its long-term value. We’d be happy to help you establish a realistic budget, identify potential tax advantages and measure the financial return on your investment.

© 2025

Business owners: Does your compensation meet the IRS standard of “reasonableness”?

Determining “reasonable compensation” is a critical issue for owners of C corporations and S corporations. If the IRS believes an owner’s compensation is unreasonably high or low, it may disallow certain deductions or reclassify payments, potentially leading to penalties, back taxes and interest. But by proactively following certain steps, owners can help ensure their compensation is seen as reasonable and deductible.

Different considerations for C and S corporations

C corporation owners often take large salaries because they’re tax-deductible business expenses, which reduce the corporation’s taxable income. So, by paying themselves higher salaries, C corporation owners can lower corporate taxes. But if a salary is excessive compared to the work performed, the IRS may reclassify some of it as nondeductible dividends, resulting in higher taxes.

On the other hand, S corporation owners often take small salaries and larger distributions. That’s because S corporation profits flow through to the owners’ personal tax returns, and distributions aren’t subject to payroll taxes. So, by minimizing salary and maximizing distributions, S corporation owners aim to reduce payroll taxes. But if the IRS determines a salary is unreasonably low, it may reclassify some distributions as wages and impose back payroll taxes and penalties.

The IRS closely watches both strategies because they can be used to avoid taxes. That’s why it’s critical for C corporation and S corporation owners to set compensation that reflects fair market value for their work.

What the IRS looks for

The IRS defines reasonable compensation as “the amount that would ordinarily be paid for like services by like enterprises under like circumstances.” Essentially, the IRS wants to see that what you pay yourself is in line with what you’d pay someone else doing the same job.

Factors the IRS examines include:

• Duties and responsibilities,
• Training and experience,
• Time and effort devoted to the business,
• Comparable salaries for similar positions in the same industry and region, and
• Gross and net income of the business.

Owners should regularly review these factors to ensure they can defend their pay levels if challenged.

How to establish reasonable compensation

Several steps should be taken to establish reasonable compensation:

1. Conduct market research. Start by gathering data on what other companies pay for similar roles. Salary surveys, industry reports and reputable online compensation databases (such as the U.S. Bureau of Labor Statistics) can provide valuable benchmarks.

Document your findings and keep them on file. This shows that your compensation decisions were informed by objective data, not personal preference.

2. Keep detailed job descriptions. A well-written job description detailing your duties and responsibilities helps justify your salary. Outline the roles you perform, such as CEO-level strategic leadership, day-to-day operations management and specialized technical work. The more hats you wear, the stronger the case for higher compensation.

3. Maintain formal records. Hold regular board meetings and formally approve compensation decisions in the minutes. This adds an important layer of corporate governance and shows the IRS that compensation was reviewed and approved through an appropriate process.

4. Document annual reviews. Perform an annual compensation review. Adjust your salary to reflect changes in the business’s profitability, your workload or industry trends. Keep records of these reviews and the rationale behind any changes.

Strengthen your position

Determining reasonable compensation isn’t a one-time task — it’s an ongoing process. We can help you benchmark your pay, draft necessary documentation and stay compliant with tax law. This not only strengthens your position against IRS scrutiny but also supports your broader business strategy.

If you’d like guidance on setting or reviewing your compensation, contact us.

© 2025

Determining “reasonable compensation” is a critical issue for owners of C corporations and S corporations. If the IRS believes an owner’s compensation is unreasonably high or low, it may disallow certain deductions or reclassify payments, potentially leading to penalties, back taxes and interest. But by proactively following certain steps, owners can help ensure their compensation is seen as reasonable and deductible.

Different considerations for C and S corporations

C corporation owners often take large salaries because they’re tax-deductible business expenses, which reduce the corporation’s taxable income. So, by paying themselves higher salaries, C corporation owners can lower corporate taxes. But if a salary is excessive compared to the work performed, the IRS may reclassify some of it as nondeductible dividends, resulting in higher taxes.

On the other hand, S corporation owners often take small salaries and larger distributions. That’s because S corporation profits flow through to the owners’ personal tax returns, and distributions aren’t subject to payroll taxes. So, by minimizing salary and maximizing distributions, S corporation owners aim to reduce payroll taxes. But if the IRS determines a salary is unreasonably low, it may reclassify some distributions as wages and impose back payroll taxes and penalties.

The IRS closely watches both strategies because they can be used to avoid taxes. That’s why it’s critical for C corporation and S corporation owners to set compensation that reflects fair market value for their work.

What the IRS looks for

The IRS defines reasonable compensation as “the amount that would ordinarily be paid for like services by like enterprises under like circumstances.” Essentially, the IRS wants to see that what you pay yourself is in line with what you’d pay someone else doing the same job.

Factors the IRS examines include:

• -Duties and responsibilities,
• -Training and experience,
• -Time and effort devoted to the business,
• -Comparable salaries for similar positions in the same industry and region
• -Gross and net income of the business 
• Owners should regularly review these factors to ensure they can defend their pay levels if challenged.

How to establish reasonable compensation

Several steps should be taken to establish reasonable compensation:

1. Conduct market research. Start by gathering data on what other companies pay for similar roles. Salary surveys, industry reports and reputable online compensation databases (such as the U.S. Bureau of Labor Statistics) can provide valuable benchmarks.

Document your findings and keep them on file. This shows that your compensation decisions were informed by objective data, not personal preference.

2. Keep detailed job descriptions. A well-written job description detailing your duties and responsibilities helps justify your salary. Outline the roles you perform, such as CEO-level strategic leadership, day-to-day operations management and specialized technical work. The more hats you wear, the stronger the case for higher compensation.

3. Maintain formal records. Hold regular board meetings and formally approve compensation decisions in the minutes. This adds an important layer of corporate governance and shows the IRS that compensation was reviewed and approved through an appropriate process.

4. Document annual reviews. Perform an annual compensation review. Adjust your salary to reflect changes in the business’s profitability, your workload or industry trends. Keep records of these reviews and the rationale behind any changes.

Strengthen your position

Determining reasonable compensation isn’t a one-time task — it’s an ongoing process. We can help you benchmark your pay, draft necessary documentation and stay compliant with tax law. This not only strengthens your position against IRS scrutiny but also supports your broader business strategy.

If you’d like guidance on setting or reviewing your compensation, contact us.

© 2025

Today’s employees have a wealth of information at their fingertips and many distractions competing for their attention. Maintaining focus and productivity can be challenging.

One proven lever for promoting engagement is a performance-based bonus plan. When carefully structured, these plans acknowledge individual contributions while accelerating the company toward its strategic goals. However, if not optimally designed, bonuses can backfire.

Feeding worker frustration and wasting resources. That’s why the right approach is essential.

What are the goals?

The first step in creating an effective employee bonus plan is to set specific and reasonable strategic goals that inspire employees and improve your business’s financial performance. They should be tied to metrics that describe intended operational improvements, such as:

• Increased sales or profits, Enhanced customer retention, or Reduced waste.
• 
  

Structure the bonus plan so that staff members’ priorities and performance goals align with the company’s strategic goals, as well as the purpose of their respective positions. Employee goals must also be specific and measurable. You may allow some workers to set “stretch” goals that require them to exceed normally expected performance levels. But don’t permit anything so difficult that an employee will likely get discouraged and give up.

It often makes sense to also set departmental goals. This way, team members can better see how their work, both individually and as a group, propels progress toward company goals. For example, the bonuses of assembly line workers at a manufacturing plant could be tied to limiting unit rejects to no more than 1%. This, in turn, would directly relate to the business’s strategic goal of reducing overall waste by 5%.

How can you do it right?

A well-structured bonus plan should do more than set employees on a “side quest” to earn more money. Ideally, it needs to educate and inspire them to think more like business owners seeking to grow the company rather than workers earning a paycheck.

For starters, keep it simple. Sometimes, bonus plans get so complicated that employees struggle to understand what they must do to receive their awards. Design a straightforward plan that clearly explains all the details. Write it in plain language so both leadership and staff have something to refer to if confusion arises.

Also, seek balance when calculating bonus amounts. This can be tricky: A bonus that’s too small won’t provide adequate motivation, while an amount that’s too large could cause cash flow issues or even jeopardize the bottom line. Many businesses structure their incentive arrangements as profit-sharing plans, so payouts are based directly on the company’s profitability.

Make the plan flexible, too, by adjusting it as business conditions change. For instance, you might tweak your bonus plan when you update your company’s strategic goals at year end. But don’t set goals that are too open-ended. Measure both strategic and individual goals on a consistent schedule with firm starting and ending dates. Companies generally track goals quarterly or annually.

Finally, consider allowing the highest achievers to reap the biggest rewards. In many businesses, salespeople have the biggest impact on the company’s overall performance. If that’s the case for your business, perhaps your sales team should be able to earn the highest amounts.

Who can help?

A thoughtfully designed bonus plan can align employee efforts with company priorities while supporting long-term growth. Let us help you create one that motivates employees, safeguards your bottom line, and keeps your business in full compliance with the tax and accounting rules.

© 2025

Determining “reasonable compensation” is a critical issue for owners of C corporations and S corporations. If the IRS believes an owner’s compensation is unreasonably high or low, it may disallow certain deductions or reclassify payments, potentially leading to penalties, back taxes and interest. But by proactively following certain steps, owners can help ensure their compensation is seen as reasonable and deductible.

Different considerations for C and S corporations

C corporation owners often take large salaries because they’re tax-deductible business expenses, which reduce the corporation’s taxable income. So, by paying themselves higher salaries, C corporation owners can lower corporate taxes. But if a salary is excessive compared to the work performed, the IRS may reclassify some of it as nondeductible dividends, resulting in higher taxes.

On the other hand, S corporation owners often take small salaries and larger distributions. That’s because S corporation profits flow through to the owners’ personal tax returns, and distributions aren’t subject to payroll taxes. So, by minimizing salary and maximizing distributions, S corporation owners aim to reduce payroll taxes. But if the IRS determines a salary is unreasonably low, it may reclassify some distributions as wages and impose back payroll taxes and penalties.

The IRS closely watches both strategies because they can be used to avoid taxes. That’s why it’s critical for C corporation and S corporation owners to set compensation that reflects fair market value for their work.

What the IRS looks for

The IRS defines reasonable compensation as “the amount that would ordinarily be paid for like services by like enterprises under like circumstances.” Essentially, the IRS wants to see that what you pay yourself is in line with what you’d pay someone else doing the same job.

Factors the IRS examines include:

• Duties and responsibilities,
• Training and experience,
• Time and effort devoted to the business,
• Comparable salaries for similar positions in the same industry and region, and
• Gross and net income of the business.

Owners should regularly review these factors to ensure they can defend their pay levels if challenged.

How to establish reasonable compensation

Several steps should be taken to establish reasonable compensation:

1. Conduct market research. Start by gathering data on what other companies pay for similar roles. Salary surveys, industry reports and reputable online compensation databases (such as the U.S. Bureau of Labor Statistics) can provide valuable benchmarks.

Document your findings and keep them on file. This shows that your compensation decisions were informed by objective data, not personal preference.

2. Keep detailed job descriptions. A well-written job description detailing your duties and responsibilities helps justify your salary. Outline the roles you perform, such as CEO-level strategic leadership, day-to-day operations management and specialized technical work. The more hats you wear, the stronger the case for higher compensation.

3. Maintain formal records. Hold regular board meetings and formally approve compensation decisions in the minutes. This adds an important layer of corporate governance and shows the IRS that compensation was reviewed and approved through an appropriate process.

4. Document annual reviews. Perform an annual compensation review. Adjust your salary to reflect changes in the business’s profitability, your workload or industry trends. Keep records of these reviews and the rationale behind any changes.

Strengthen your position

Determining reasonable compensation isn’t a one-time task — it’s an ongoing process. We can help you benchmark your pay, draft necessary documentation and stay compliant with tax law. This not only strengthens your position against IRS scrutiny but also supports your broader business strategy.

If you’d like guidance on setting or reviewing your compensation, contact us.

Today’s job seekers and employees have grown accustomed to having an incredible amount of information at their fingertips. As a result, many businesses find that failing to adequately disclose certain things negatively impacts their relationships with these parties.

Take pay transparency, for example. This is the practice, or lack thereof, of a company openly sharing its compensation philosophy, policies and procedures with job candidates, employees and even the public. It typically means disclosing pay ranges or rates for specific positions, as well as clearly explaining how raises, bonuses and commissions are determined.

You’re not alone if your business has yet to formalize or articulate its pay transparency strategy. In its 2024 Global Pay Transparency Report, released in January of this year, global consultancy Mercer reported that only 19% of U.S. companies have a pay transparency strategy. Here are five general steps to creating one:

1. Conduct a payroll audit. Over time, your company may have developed a relatively complex compensation structure and payroll system. By meticulously evaluating and identifying all related expenditures under a formal audit, you can determine what information you need to share and which data points should remain confidential.

You may also catch inconsistencies and disparities that need to be addressed. Ultimately, an audit can provide the raw data you need to understand whether and how your company’s compensation aligns with the roles and responsibilities of each position.

2. Define or refine compensation criteria. To be transparent about pay, your business needs clear and consistent criteria for how it arrived — and will arrive — at compensation-related decisions. If such criteria are already in place, you may need to refine the language used to describe them. Again, your objective is to clearly explain to job candidates and employees how your company makes pay decisions so you can reduce or eliminate any perception of bias or unfairness.

3. Develop a communications “substrategy.” Under your broader pay transparency strategy, your company must have a comprehensive substrategy for communicating about compensation with job candidates, employees and, if you so choose, the public. There are many ways to go about this, and the details will depend on your company’s size, industry, mission and other factors. However, common aspects of a communications substrategy include:

• Providing written guidelines explaining your compensation philosophy and structure,
• Supplementing those guidelines with an internal FAQs document,
• Holding companywide or department-specific Q&A sessions, and
• Using digital platforms to share updates and issue reminders.

4. Train and rely on supervisors. Your people managers must be the frontline champions and communicators of your pay transparency strategy. Unfortunately, many companies struggle with this. In the aforementioned Mercer report, 37% of U.S. companies identified managers’ inability to explain compensation programs as their biggest challenge in this area.

Naturally, it all begins with training. Once you’ve defined or refined your compensation criteria and developed a communications substrategy, invest the time and resources into educating supervisors (and higher-level managers) about them. These individuals need to become experts who can discuss your business’s compensation philosophy, policies, procedures and decisions. And it’s critical that their messaging be accurate and consistent to prevent misunderstandings and misinformation.

5. Get input from professional advisors. Before you roll out a formal pay transparency strategy, ask for input from external parties. Doing so is especially important for small businesses that may have only a few voices involved in the planning process.

For example, a qualified employment attorney can help ensure your strategy is legally compliant and limit your potential exposure to lawsuits. And don’t forget us — we’d be happy to assist you in conducting a payroll audit, identifying all compensation-related expenses and aligning your strategy with your business objectives.