Small Business

What is a Common Law Employee from a Health Insurance Standpoint?

Updated on November 30, 2019


If you are purchasing a group plan for your small business, you’re going to have to report how many employees you have. While this may seem like a straightforward number, you may find that people you thought were employees actually are not (at least in the eyes of health insurance providers). The reverse can also be true – someone you didn’t think of as an employee could be a common law employee.

Let’s define what the health insurance world often considers an employee (sometimes referred to as a common law employee).

Common law employee definition

So who does count as a common law employee? Well, according to the Internal Revenue Service (IRS), if you (the business owner) can control what work will be done and how the work is performed, then the person carrying out the task may be classified as a common law employee.  This can be true even if the individual performing those services has minimal supervision.

This definition might help rule out some contracted workers; if you are only in control of the product they produce, and not how exactly the process is executed, then they might not be considered your common law employees.

The term “common law employee” is used by some of the insurance companies whose plans we offer at eHealth, but you may see other terms used to describe what constitutes an employee when it comes to health insurance. Knowing the definition of an employee from a health insurance standpoint is helpful, so that no matter how it is phrased, you understand the meaning.

A common law employee cannot be yourself, or a spouse—so if you have a business that is just you and your spouse, then you will typically not qualify for a group plan for small business health insurance.

What do I need in terms of common law employees to qualify for a small business group plan?

We’ve established that a spouse and a small business owner alone will generally not make the cut to count as employees for small business insurance. So what kind of employees, and how many, do qualify your small business for a group plan?

In most cases, you need at least one employee (who can often be a common law employee) to get a small business health insurance plan. Keep in mind that plans from different companies could have different standards, so make sure to pay attention to details when looking at plans.  Here are three details about your employee(s) that generally need to be true in order for your small business to get a group plan:

  • You need at least one common law employee (not yourself or a spouse)
  • This employee needs to be working full-time (at least 30 hours per week)
  • At least one employee opting to enroll in the group plan

These are just some basic qualifications of what you need to qualify for a group plan. The main takeaway is that you typically need at least one common law employee who will be in your group plan, so make sure you have a common law employee before taking the time to search for a group plan.

If you’ve realized that you do not employ at least one common law employee, you still have a wide range of excellent options for individual and family health insurance and supplementary health insurance products from eHealth.

Keep in mind that plans and companies might use different terminology and rules about employees, and these rules may not apply to every plan on private or government markets.

A few extra details to keep in mind about common law employees

When totaling the sum of how many full-time common law employees you have, depending on the plan you wish to enroll in, you might be able to combine the hours of part-time employees to count for one or more full-time employees. Essentially, this would mean you can add up all the hours that your part-time employees work in a week, and then divide it by 30 (which is a full-time workweek).

Be careful when deciding who is an employee (or a common law employee) and who is not. You can read about independent contractor vs employee to understand the difference between those two types of workers. If you give someone a W-2 form at the end of the year, you can generally assume that person is probably classified as an employee.  However, even contractors who do not receive a W-2 could be classified as an employee.  But like a lot of rules of thumb, this isn’t going to be the definitive answer, so check with your legal advisor, tax specialist, or accountant in order to make sure you are correct in assuming someone is a “common law employee” or that they meet any other employee definition you encounter.

This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.

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