Avoiding Penalties While Costs Rise: Navigating Health Coverage After California’s Wage Increase
In April 2024, California introduced a landmark change for the fast food industry: a statewide minimum wage of $20 per hour for workers at major fast food chains. This increase, aimed at boosting earnings for more than 750,000 employees, is reshaping the state's economy and workforce landscape.
While the headlines tend to focus on payroll, there’s another critical—and often overlooked—impact: health coverage compliance. California requires every resident to maintain Minimum Essential Coverage (MEC) or face tax penalties. At the same time, higher wages change how affordability calculations work under the federal Affordable Care Act (ACA).
If you operate a franchise or multi-unit business in California, understanding these requirements is essential to avoid fines that can run into hundreds of thousands of dollars per year. Here’s what you need to know—and what you can do to stay compliant without sacrificing your margins.
The New Wage Landscape in California Fast Food
On April 1, 2024, California implemented Assembly Bill 1228, which raised the minimum wage to $20 per hour for workers at fast food chains with 60 or more locations nationally.
READ MORE: Fast Food Minimum Wage Frequently Asked Questions
What you need to know:
Applies to large fast food brands operating in California.
Increases the prior statewide minimum by over 20%.
Includes future adjustments tied to inflation.
While the new wage is a win for workers, the additional labor costs mean that employers must reevaluate budgets across the board, including benefits.
California’s Individual Mandate: Penalties You Can’t Ignore
Since 2020, California residents have been subject to the state’s individual mandate, which requires them to carry MEC or pay a penalty on their state tax return.
In 2024, the penalty for an uninsured adult is either $900 per adult and $450 per dependent child or 2.5% of annual household income (whichever is higher).
For employees, these penalties create pressure to seek affordable coverage. For employers, it increases expectations that jobs—even hourly positions—come with some level of health benefits.
The ACA Still Applies: Federal Compliance Requirements
On top of California’s rules, the ACA’s Employer Shared Responsibility provisions remain in force nationwide.
If you have 50 or more full-time or full-time-equivalent employees, you must: offer MEC to at least 95% of your full-time employees (Penalty A) and ensure the coverage meets affordability and minimum value standards (Penalty B).
2025 ACA penalties:
Penalty A (no MEC offered): $2,970 per full-time employee (minus the first 30)
Penalty B (coverage not affordable or minimum value): $4,460 per employee receiving a subsidy through the Exchange (IRS Notice 2024-20)
Example:
A franchise with 100 full-time employees that fails to offer any coverage could owe:
(100 – 30) × $2,970 = $207,900 per year
Why the $20 Minimum Wage Affects Health Coverage Compliance
Higher wages impact compliance in two ways:
Affordability thresholds change.
Under the ACA, coverage is considered affordable if the employee’s share of self-only premium does not exceed 8.39% of household income in 2024 (IRS Rev. Proc. 2023-29). At $20/hour, a full-time worker earns around $3,466/month.
8.39% of that income = $290/month maximum for self-only coverage. This means employees are now expected to contribute more without the plan being considered unaffordable—changing your premium-sharing calculations.
More employees lose subsidy eligibility.
As incomes rise, some workers will no longer qualify for Covered California premium subsidies. Those employees may expect employer coverage instead—or face higher out-of-pocket premiums.
How MEC Plans Can Help You Navigate Compliance Without Breaking the Bank
Minimum Essential Coverage (MEC) plans are designed to satisfy ACA requirements to offer coverage—without the cost of major medical plans.
How MEC plans work:
Cover preventive services (annual exams, screenings, immunizations) with no cost-sharing.
Satisfy the ACA’s mandate to offer coverage (avoiding Penalty A).
Can be paired with other limited medical plans to improve affordability and perceived value.
Benefits of MEC Plans for Fast Food Employers:
Predictable, low monthly premiums.
Simple administration for high-turnover teams.
ACA compliance protection.
A basic safety net for employees.
How to Protect Your Business
If your business is impacted by these changes, here’s how to protect your company:
Reassess affordability.
Calculate whether your employee contributions for self-only coverage still fall under the 8.39% threshold now that wages have increased. If you were close to the threshold before, you may need to adjust premium splits.
Audit your coverage.
Make sure your existing benefits meet ACA and state minimum requirements:
Do you offer MEC to at least 95% of full-time employees?
Do you document offers and waivers?
Are you prepared to issue 1095-C forms?
Educate your team.
With wages up and subsidies potentially down, employees may be confused about their options. Clear communication helps reduce turnover and ensures more employees enroll.
Evaluate MEC options
If you don’t offer traditional health coverage, now is the time to consider MEC plans to avoid Penalty A.
Plan for future increases.
Remember, the $20/hour rate is just the start. Annual adjustments tied to inflation will keep pushing labor costs higher. The right benefits strategy can help you stay compliant without unpredictable expenses.
The Bottom Line
California’s new $20 minimum wage is transforming fast food operations—and compliance is more critical than ever. Offering no health coverage is no longer an option for large employers, and ignoring affordability thresholds could lead to six-figure penalties.
MEC plans can help you:
✅ Satisfy ACA requirements
✅ Offer valued preventive benefits
✅ Avoid costly fines
✅ Maintain control over your budget
Ready to explore how MEC plans can protect your business as wages rise?
We’re here to help. Contact us today for a no-obligation consultation and discover how affordable compliance can be.