Pay-or-Play Affordability Percentage Will Increase for 2025
On July 18, 2025, the IRS released Revenue Procedure 2025-25 to index the contribution percentage in 2026, determining the affordability of an employer’s plan under the Affordable Care Act (ACA). For plan years beginning in 2026, employer-sponsored coverage will be considered affordable under the ACA’s “pay-or-play” rules if the employee’s required contribution for self-only coverage does not exceed 9.96% of their household income for the year. This increase is significant from 2025 (9.02%), the highest threshold since the ACA became law.
Affordability Test
The words “Affordable Care Act” with hundred dollar bills in the background.
ACA’s pay-or-play rules require applicable large employers (ALEs) to offer affordable, minimum-value health coverage to their full-time employees (and dependents) or risk paying a penalty. The affordability of health coverage is a key point in determining whether an ALE may be subject to a penalty. If the employee’s required contribution to the plan does not exceed 9.5% (as adjusted annually) of the employee’s household income for the taxable year, an ALE’s health coverage is considered affordable.
This percentage is adjusted annually based on health plan premium growth rates in relation to income growth rates.
Adjustments to the affordability percentage are as follows:
- 8.39% for plan years beginning in 2024;
- 9.02% for plan years beginning in 2025; and
- 9.96% for plan years beginning in 2026.
The affordability test applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that provides minimum value.
Because an employer generally will not know an employee’s household income, the IRS has provided three optional affordability safe harbors that ALEs may use to determine affordability based on available information: the Form W-2 safe harbor, the rate of pay safe harbor and the federal poverty level safe harbor.
To illustrate this increase, the maximum monthly premium you could charge someone who earns $12/hour (assuming they work 40 hours per week for the W-2 method) using the three Safe Harbor methods would be:
| W-2 | Rate of Pay | Federal Poverty Level* | |
|---|---|---|---|
| 2025 | $187.62 | $140.71 | $116.50 |
| 2026 | $207.17 | $155.38 | $134.46 |
*assumes a “normal” FPL increase in 2026
Employer Takeaway
The updated affordability percentages are effective for taxable and plan years beginning on or after Jan. 1, 2026. This increase is “decent” from the affordability contribution percentage for 2025 and, as a result, some employers may have additional flexibility in setting their employee contributions for 2026 to meet the adjusted rate.
DOL Launches Self-audit Programs
On July 24, 2025, the U.S. Department of Labor (DOL) announced several self-audit programs designed to help employers, unions and pension plans voluntarily assess and improve their compliance with federal labor laws.
DOL Self-audit Programs
The DOL self-audit programs include programs from six federal agencies, highlighting new, updated and preexisting programs that employers may use to assess and voluntarily correct violations of federal labor laws and reduce the risk of formal investigations or litigation. The following agencies offer self-audit programs:
- Employee Benefits Security Administration (EBSA)—EBSA allows employers to correct employee benefit plan violations under the:
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- Voluntary Fiduciary Correction Program, which encourages employers and plan officials to voluntarily correct violations of the Employee Retirement Income Security Act (ERISA); and
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- Delinquent Filer Voluntary Compliance Program, which encourages compliance with ERISA’s annual reporting requirements and offers incentives to late filers, including reduced penalties;
- Mine Safety and Health Administration (MSHA)—MSHA launched a new Compliance Assistance in Safety and Health program that provides resources for various safety and health compliance topics.
- Occupational Safety and Health Administration (OSHA)—OSHA is expanding its Voluntary Protection Programs, which allow businesses to undergo regular self-evaluations to avoid routine inspections. Plus, OSHA is increasing efforts to support voluntary compliance through its On-Site Consultation Program, which offers small and medium-sized businesses no-cost and confidential safety and health services.
- Office of Labor-Management Standards (OLMS)—OLMS allows unions to self-assess compliance with the Labor-Management Reporting and Disclosure Act under its Voluntary Compliance Partnership program;
- Veterans’ Employment and Training Service (VETS)—VETS launched a new program, SALUTE: Support and Assistance for Leaders in USERRA Training and Employment, for employers to review their policies and practices under the Uniformed Services Employment and Reemployment Rights Act; and
- Wage and Hour Division (WHD)—The WHD is restarting the Payroll Audit and Independent Determination program for employers to identify and correct minimum wage, overtime and leave violations under the Fair Labor Standards Act and Family and Medical Leave Act.
Employer Takeaway
Employers may use the self-audit programs offered by the above agencies, as applicable, to identify and correct legal violations. For additional resources, toolkits, and program-specific guidance, employers may visit the DOL’s self-audit programs website.
Mandatory Paid Sick Leave, Mandatory Paid Family and Medical Leave, and Voluntary Paid Family Leave Insurance—State Law Overviews
As a growing trend, states nationwide enact laws addressing paid sick leave and mandatory or voluntary family and medical leave for employees. Please see our white papers on all three to see how, if at all, having employees in these states may affect your leave and sick policies.
