Understanding the minimum employees required for group health insurance is essential for small businesses deciding how to structure benefits. In most states, the minimum is two employees who are not married to each other. This rule prevents single-owner plans from qualifying as “groups,” ensuring that true employer-employee relationships exist.

Whether you operate an LLC, S-Corp, or partnership, the right structure can make the difference between being eligible for group coverage or needing to use individual health insurance instead. This guide explains how the rules work, what counts as an employee, and how to design your plan efficiently.

How Many Employees Do You Need?

To qualify for small group health insurance, you typically need at least two full-time W-2 employees who are not married. This standard applies to most states and insurers, although a few allow “owner + spouse + one additional employee” setups. The employees must meet the minimum hour and compensation requirements set by your state and the carrier.

• Two-person minimum: Required for most states. The employees must have a bona fide employer-employee relationship.
• Married couples: If the business is jointly owned by a married couple, they usually count as one, not two employees.
• Part-time staff: Some insurers may include part-time employees if they work a minimum of 20–30 hours per week.

Many carriers will request payroll documentation (such as a recent 941 form) to confirm that two employees exist and receive W-2 wages.

Special Rules for Business Structures

The way your business is structured can affect eligibility. Here’s how it breaks down:

• Sole Proprietorship: You’ll need at least one additional W-2 employee to qualify for a group plan. Owner-only plans don’t qualify.
• Partnership or LLC: Partners can sometimes count as employees for group purposes if they draw guaranteed payments and are active participants.
• S-Corporation: Shareholders owning more than 2% are treated as self-employed for tax purposes but can still be covered if a second unrelated W-2 employee is enrolled.
• C-Corporation: All full-time employees, including owners, may qualify as W-2 workers for the plan.

For small teams, see our guide on 2-person group health insurance to understand how to meet participation and documentation requirements.

Participation and Contribution Requirements

Even if you meet the employee minimum, you must also satisfy participation and employer contribution rules. Typically:

• The employer must pay at least 50% of the employee-only premium.
• A minimum of 70% of eligible employees must enroll (waivers for other coverage usually don’t count against this).

These thresholds help carriers maintain stable risk pools. Businesses that can’t meet participation rates may qualify for a special open enrollment window each year, allowing groups with lower participation to apply without restrictions.

Do the Rules Differ by State?

Yes. While most states follow the 2-employee minimum, a few impose additional conditions or documentation standards. For example, some carriers in California and New York may accept one-employee groups if the owner has a full-time spouse as an employee, while others prohibit family-only setups entirely.

Always confirm with your broker before applying. Diversified Insurance Brokers is licensed nationwide and can help interpret the rules specific to your state’s small group market.

Benefits of Group Health Insurance for Small Businesses

Meeting the minimum employee threshold opens the door to key advantages:

• Tax deductions: Premiums are deductible to the business, and employer contributions are excluded from employee taxable income.
• Lower premiums: Group coverage spreads risk across members, lowering per-person cost compared to individual plans.
• Better networks and benefits: Group policies often include broader provider networks and richer prescription and preventive care coverage.
• Employee retention: Offering health benefits improves satisfaction and retention in competitive labor markets.

For companies ready to customize their plan, review our page on small employer group health insurance for plan design options and carrier differences.

Minimum Employee Requirements by Business Type

Related Pages

• What Is Self-Funded Group Health Insurance?
• 2-Person Group Health Insurance
• Small Employer Group Health Insurance
• What Do Insurance Companies Do With Your Money?