Do small Texas employers have to offer COBRA or continuation coverage?
Below twenty employees you are outside federal COBRA — and quite possibly inside Texas state continuation, which reaches employers with two.
Last updated: August 02, 2026
Direct Answer
Small Texas employers with fewer than 20 employees are generally not required to offer federal COBRA continuation coverage. However, they must comply with Texas’s state continuation coverage rules if they provide group health plans. This distinction matters because many small businesses worry about legal exposure and employee relations when coverage ends, so clear guidance is essential to avoid compliance gaps.
Controlling authority: federal COBRA at 20 or more employees, and Texas state continuation for group plans issued to employers with 2 to 19. Plan documents and the carrier control the detail.
Two regimes, two thresholds
Federal COBRA applies only to employers with 20 or more employees, so many small Texas businesses fall outside its scope. Instead, Texas law requires continuation coverage for employers who offer group health plans but have fewer than 20 employees. This state continuation coverage operates differently and usually covers shorter periods. Understanding these distinctions helps employers set realistic expectations and avoid costly mistakes when benefits end.
In practice, this means small employers must have systems to notify eligible employees about continuation rights under Texas rules, track coverage periods, and manage payments. The operational challenge is real: small HR teams often juggle multiple roles while trying to stay compliant. Having simple, usable procedures aligned with actual workflows is critical to avoid the common trap of assuming federal rules apply or overlooking state-specific obligations.
Texas point that catches small employers: federal COBRA applies at 20 or more employees, so many Texas employers correctly conclude they are outside it — and then incorrectly conclude they owe nothing. Texas state continuation reaches group health plans issued to employers with as few as two employees, and provides up to nine months of coverage. The notice usually runs through the carrier rather than the employer, which is precisely why it gets overlooked.
| Item | Federal COBRA | Texas state continuation |
|---|---|---|
| Which employers | 20 or more employees | Group plans issued to employers with 2 to 19 employees |
| Duration | 18 months standard; 29 with a disability extension; up to 36 in defined circumstances | Up to nine months |
| Employer notifies the plan administrator | Within 30 days of the qualifying event | Notice obligations apply |
| Election notice issued | Within 14 days by the plan administrator | Per the plan and carrier |
| Employee election window | 60 days | 60 days |
| The common mistake | Assuming a small employer has no obligation at all | A Texas employer under 20 is not simply outside the regime. State continuation may still apply, and the notice usually runs through the carrier. |
Under twenty does not mean no obligation
What I see employers miss most is confusing federal COBRA rules with Texas continuation coverage, leading to inconsistent communication or incorrect denials of coverage options. Another gap is underestimating the administrative load continuation coverage imposes, especially for small teams without dedicated benefits staff. These blind spots create frustration internally and raise the risk of disputes with former employees.
Employers sometimes neglect to document their notifications and employee acknowledgments properly. This lack of documentation is a frequent source of liability because memory and informal practices don’t hold up under scrutiny. Also, many small employers don’t review their group health plan terms regularly, which can result in missing state continuation nuances or deadlines that cause coverage lapses.
| Situation | First step | The trap |
|---|---|---|
| Employee was never enrolled because the employer missed it | Contact the carrier immediately — retroactive correction is often possible where the error was administrative | Waiting past the plan year makes it far harder, and the employer may end up bearing the claims. |
| Employee missed their own enrolment deadline | Check for a qualifying life event; otherwise the next open enrolment | Making an exception for one employee sets a precedent the plan may not permit. |
| Deductions taken but coverage never started | Refund promptly, in full, and document the correction | Holding the money while you investigate is the single fastest way to lose trust. |
| Deductions missed for months | Establish what the employee actually owes, then agree a schedule | Recovering it in one deduction generally needs written authorisation under the Texas Payday Law, and may not be permitted at all. |
| Deductions taken at the wrong rate | Reconcile both directions — over and under | Employers correct underpayments to themselves faster than overpayments to the employee, and that asymmetry is visible. |
| Any of the above | Write to the employee explaining what happened and what you will do | Silence turns an administrative error into a trust problem. |
Where small employers are exposed
Ignoring or misunderstanding continuation coverage requirements can create costly legal and employee relations problems. Recognizing practical risk triggers helps employers prioritize controls that maintain compliance and operational stability.
- Failing to notify eligible employees about continuation coverage rights timely.
- Mixing up federal COBRA and Texas continuation coverage requirements.
- Missing deadlines for coverage election or premium payments.
- Inadequate documentation of communications and employee responses.
- Assuming small size exempts employer from all continuation obligations.
Confirm with the carrier which regime applies
Before acting, review your group health plan documents to confirm if continuation coverage is offered and under what terms. Verify employee counts carefully as this affects which rules apply. Next, evaluate your current notification procedures to ensure they are clear, timely, and documented. This practical review identifies gaps between policy and practice, which is where most compliance failures occur.
Also assess your internal capacity to manage coverage tracking and premium collection. Operational realism means setting up processes that can consistently function under typical staffing constraints. If you find your current system relies on informal practices or memory, it’s time to implement straightforward, repeatable steps that protect both your employees and your organization.
Scores policy language against the obligations it is supposed to discharge.
When a qualifying event has already occurred
If your organization struggles with notification timing, documentation, or understanding which continuation rules apply, professional HR guidance is advisable. A strategic HR consultant can help tailor practical, compliant workflows that fit your capacity and reduce legal risk. Early intervention prevents costly disputes and preserves leadership accountability.
Likewise, if managers or payroll staff feel pressured or confused about handling coverage terminations, bringing in expert support can clarify roles and expectations. Remember, compliance is not just about following rules on paper; it’s about embedding effective, usable systems that hold up in everyday operations.
Need Help Managing Continuation Coverage?
Faulkner HR Solutions specializes in practical, strategy-backed HR consulting for Texas employers. If you’re unsure about your continuation coverage obligations or want to build compliance systems that work in real-world conditions, contact us today for expert guidance tailored to your needs.
Get HR HelpThis page provides general HR information for employers and is not legal advice. For legal interpretation or representation, consult qualified employment counsel.