COBRA Employer Size Threshold: Which Employers Must Offer COBRA Coverage

6/4/2026

The COBRA threshold sounds simple — 20 employees — and then falls apart on contact with a real workforce. Part-time employees count as fractions. Related companies are aggregated. The measurement is taken across the preceding calendar year, not today. And employers below the threshold are frequently covered by a state law that reaches down to two employees.

Quick answer: Federal COBRA applies to group health plans maintained by employers that had at least 20 employees on more than 50 percent of typical business days in the preceding calendar year. Part-time employees count as a fraction of a full-time employee. Related entities under common control are counted together. Employers below the threshold are often subject to a state mini-COBRA law instead.

The Federal Counting Rule

Work through the test in this order:

1. Look at the preceding calendar year, not the current one. Coverage for 2027 is determined by the 2026 count.
2. Count on each typical business day. The employer must have had 20 or more employees on more than 50 percent of its typical business days during that year.
3. Count all common-law employees — full-time, part-time, and those on leave — regardless of whether they are enrolled in or eligible for the health plan. This is the point employers get wrong most often: plan eligibility is irrelevant to the count.
4. Convert part-time employees to fractions. Each part-time employee counts as a fraction equal to the hours they customarily work divided by the hours an employee must work to be considered full-time.
5. Exclude self-employed individuals, independent contractors, and directors — unless they are actually common-law employees under a proper classification analysis.

Fractional counting example

Group	Count	Calculation
Full-time employees (40 hrs)	14	14.0
Part-time at 20 hrs/week	10	10 × (20/40) = 5.0
Part-time at 30 hrs/week	3	3 × (30/40) = 2.25
Total	27 people	21.25 — above threshold

An employer that counted only its 14 full-time employees would conclude it was exempt. It is not.

Controlled Groups and Affiliated Service Groups

Related employers are aggregated for the COBRA count. If two or more entities are members of a controlled group or an affiliated service group under the Internal Revenue Code, their employees are counted together.

This regularly converts apparently exempt small businesses into covered employers. A holding company with four operating subsidiaries of eight employees each is a covered employer with 32 employees, not four exempt companies.

The controlled group rules are technical — parent-subsidiary, brother-sister, and combined groups each have their own ownership tests. If your organization has any common-ownership structure, get the analysis done in writing by a benefits professional rather than assuming.

Who Is Exempt

Category	Status
Employers with fewer than 20 employees (as counted above)	Exempt from federal COBRA — but check state mini-COBRA
Church plans	Exempt
Federal government plans	Subject to a separate parallel program, not COBRA
State and local government plans	Subject to comparable continuation requirements under the Public Health Service Act
Employers with no group health plan	No COBRA obligation — COBRA attaches to the plan, not the employer

That last row matters. An employer with 400 employees and no group health plan has no COBRA obligation. COBRA is a continuation right under a plan; no plan, no continuation.

What Counts as a Group Health Plan

Broader than most employers assume. COBRA continuation applies to medical, dental, vision, health flexible spending arrangements, health reimbursement arrangements, employee assistance programs that provide medical care, and on-site medical clinics that provide more than first aid.

The dental and vision plans are the most commonly missed. An employer offering standalone dental coverage must offer COBRA continuation for it, separately from the medical plan, and a qualified beneficiary may elect one without the other.

State Mini-COBRA Laws

Most states have continuation laws that apply to employers below the federal threshold. They vary significantly in five dimensions:

• Employer size covered — commonly 2–19 employees, sometimes any employer with a group plan
• Duration of continuation — ranging from a few months to periods matching or exceeding federal COBRA
• Premium limits — some states permit less than the 102 percent federal maximum, others more
• Qualifying events and eligible beneficiaries — not always identical to federal COBRA
• Who administers notice — in several states the insurer, not the employer, carries the notice obligation

Mini-COBRA generally applies to fully insured plans; self-funded plans are typically preempted by ERISA. This is a meaningful planning point for small employers considering self-funding.

See our guide to state mini-COBRA laws employers must know and COBRA small business requirements.

Crossing the Threshold: What Changes and When

An employer that exceeds 20 employees during a calendar year becomes subject to COBRA on January 1 of the following year. Practical steps in the year you cross:

1. Track the count monthly, using the fractional method, and document it. You will need to prove the count if challenged.
2. Prepare before January 1. The General Notice must go to covered employees and spouses within 90 days of coverage beginning — which means it is due immediately for your existing population.
3. Assign administration. Decide whether to administer internally or engage a third-party administrator before the first qualifying event, not after.
4. Update the SPD and plan documents to reflect COBRA rights.
5. Build the qualifying event workflow. The employer generally has 30 days to notify the plan administrator of a qualifying event, and the administrator has 14 days to send the election notice.
6. Coordinate with FMLA and other leaves. The interaction between leave and COBRA qualifying events is a recurring error source — see how to handle COBRA qualifying events in conjunction with FMLA leave.

The Cost of Getting It Wrong

COBRA non-compliance carries an excise tax under the Internal Revenue Code, ERISA statutory penalties for notice failures, and — usually the largest item — liability for the medical claims a qualified beneficiary would have had covered had they been offered continuation. A single unoffered election followed by a serious medical event can dwarf every other penalty combined.

See penalties for COBRA violations.

Frequently Asked Questions

Do part-time employees count toward the 20?

Yes, as fractions based on customary hours divided by full-time hours. Only counting full-time employees is the most common threshold error.

Do employees who are not eligible for the health plan count?

Yes. The count includes all common-law employees regardless of plan eligibility or enrollment.

What if we have exactly 20 employees?

The test is 20 or more on more than 50 percent of typical business days in the preceding calendar year. Twenty meets the threshold.

Do our related companies count together?

If they form a controlled group or affiliated service group under the Internal Revenue Code, yes. Get the determination in writing.

If we drop below 20, does COBRA end for current participants?

Coverage obligations for individuals already receiving COBRA continuation generally continue for their maximum period. Ceasing to be a covered employer prospectively does not terminate existing continuation rights.

Get the Threshold Analysis Right Before the First Qualifying Event

COBRA errors are discovered at the worst possible moment — when someone has already incurred claims. The threshold determination is a 30-minute analysis that prevents a six-figure problem.

The COBRA Training & Certification Program covers coverage determination, qualifying events, notices, and premium administration. Benefits professionals managing multiple compliance regimes should look at the Integrating FMLA, ADA, COBRA, and Workers' Compensation program.

👉 See the COBRA Training & Certification Program →

Additional resources: COBRA Compliance FAQs | Rules for Determining Whether a Plan or Employer Is Subject to COBRA | Glossary of COBRA Terms