Alyssa Lane
Employers can offer different levels of benefits to different classes of employees, as long as these distinctions are not discriminatory and are approved by insurance carriers. Common classes for which employers may consider different health benefit strategies include full-time vs. part-time, hourly vs. salaried, and exempt vs. non-exempt. Employers can also offer different benefits to employees based on family status, such as single, married, or employees with dependents. Additionally, employers can combine a CBA classification with other permitted classes of employees, such as creating full-time and part-time CBA subclasses. When an employee moves between classes, it is important to consider the impact on their medical insurance coverage and any applicable special enrollment periods.
| Characteristics | Values |
|---|---|
| Classes | Full-time, Part-time, CBA, Non-resident aliens with no US-based income, Salaried, Non-salaried, Hourly, Temporary, W-2 employees, 1099 contractors, International workers, Highly compensated individuals |
| Rules | Employers can offer different levels of benefits to different classes of employees as long as it is not discriminatory |
| Discrimination rules | Employers cannot discriminate based on age, race, sex, disability, or other characteristics protected by federal or state law |
| ICHRA | Individual Coverage Health Reimbursement Arrangement; allows employers to provide reimbursements for qualified medical expenses; employees must be enrolled in individual health insurance coverage to use funds |
| QSEHRA | Qualified Small Employer Health Reimbursement Arrangement; available for organizations with fewer than 50 FTEs; offers a single benefit to all full-time W-2 employees |
| HRA | Health Reimbursement Arrangement; allows employers to customize allowances and eligibility using employee classes; must be offered to all similarly situated employees within each class |
| Health Stipend | A taxable benefit that provides flexibility and customization; can be offered to W-2 employees, 1099 contractors, and international workers |
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Full-time vs. part-time
Employers can offer different levels of benefits to different classes of employees, as long as these distinctions are not discriminatory. For example, employers can offer health insurance only to full-time employees, or they can offer a "gold plan" to full-time workers and a lower-quality "silver plan" to part-time workers. However, employers must treat all similarly situated employees equally, and they cannot discriminate based on protected characteristics such as age, race, sex, and disability.
Applicable large employers (ALEs), or employers with 50 or more full-time equivalent employees (FTEs), are subject to the Affordable Care Act's (ACA) employer mandate and must offer a health insurance plan to at least 95% of their full-time employees. The ACA does not give individual employees the right to demand healthcare from their employers, but it does impose a penalty on ALEs that fail to provide the required coverage.
The qualified small employer HRA (QSEHRA) is only available for organizations with fewer than 50 FTEs. A QSEHRA allows employers to offer a single benefit to all full-time W-2 employees or to both full- and part-time employees. Employers can also provide different allowances based on family status, such as single, married, or employees with dependents.
When creating classes of employees for health insurance purposes, employers should address the following issues:
- Clearly communicate class distinctions in all plan materials
- Confirm class distinctions with insurance carriers and/or stop-loss providers
- Structure the approach to comply with applicable non-discrimination rules, such as Section 125 and §105(h) nondiscrimination rules
By following these guidelines, employers can ensure that they are offering health insurance in a fair and compliant manner to different classes of employees, including full-time and part-time workers.
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Hourly vs. salaried
Employers can offer different levels of benefits to different employees, as long as it is not done on a discriminatory basis. For example, employers can combine a CBA classification with other permitted classes of employees, such as full-time and part-time employees.
When it comes to the distinction between hourly and salaried employees, there are several differences to note. Firstly, salaried employees receive a fixed wage, which is often cited on an annual basis and paid biweekly, while hourly employees are paid based on the exact number of hours they work. Salaried employees are typically exempt from overtime pay, even if they work extra hours, whereas hourly employees are eligible for overtime pay, usually calculated at a rate of 1.5 times their regular hourly wage for hours worked beyond 40 in a workweek.
The Fair Labor Standards Act (FLSA) determines whether employees are paid a salary or by the hour, and the duties performed determine the job category, regardless of the job title. To be classified as salaried, employees must meet the FLSA minimum threshold, which is currently $684 per week or $35,568 annually. Salaried positions often come with additional benefits, such as health insurance, paid time off, and retirement plans, making them attractive to employees seeking stability and long-term career growth. These roles are commonly found in professional industries and are associated with specialized skills, consistent schedules, or strategic responsibilities.
On the other hand, hourly positions are prevalent in industries with variable workloads or on-demand labor, allowing employees to earn extra income through overtime. While hourly pay may offer less predictability and benefits, it can provide a higher income in well-compensated fields with abundant overtime opportunities. Additionally, hourly employees may find it easier to separate work from their personal lives, as they are paid for all hours worked, and their income is directly tied to the number of hours recorded.
In summary, the choice between salary and hourly pay structures depends on the nature of the role and the company's operational needs. Each structure has distinct advantages and challenges, impacting compensation, benefits, job stability, and overtime eligibility.
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Job positions
Employers can offer health insurance to certain groups of employees and not others, as long as these decisions are not made on a discriminatory basis. There is no federal law requiring employers to provide the same level of health insurance coverage to all employees. However, employers must comply with federal laws that prohibit discrimination based on protected characteristics such as age, race, sex, and disability.
Other factors that influence the class of employees for medical insurance include whether they are salaried or receive an hourly wage, whether they are exempt or non-exempt, and whether they are full-time or part-time employees. Employers can also differentiate between employees who have just joined the company and existing employees, with health benefits for new employees kicking in after a certain period.
It is important to note that employers must treat all similarly situated employees equally within each class. The distinctions between classes should be clearly communicated to employees and approved by insurance carriers to comply with non-discrimination rules. Employers can offer different levels of benefits or contribution strategies to different classes of employees.
In terms of specific job positions, employers have the flexibility to determine which groups of employees receive health insurance coverage. However, it is crucial to ensure that these distinctions are not discriminatory and are based on bona fide employment-based classifications.
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Seniority
When it comes to the provision of pay and benefits, employers must comply with federal laws that prohibit discrimination based on certain protected characteristics, such as age, race, sex, and disability. These laws are known as nondiscrimination rules, and they apply to both formal and informal health benefits, such as group health insurance and health reimbursement arrangements (HRAs).
There are specific nondiscrimination rules that employers must follow when devising a class-based health plan design. These rules are designed to ensure that contributions and benefits are available on a nondiscriminatory basis for all employees. For example, employers cannot create a class of employees that specifically excludes someone from receiving benefits. Additionally, employers must clearly communicate any class distinctions to employees in plan materials addressing eligibility and confirm these distinctions with insurance carriers and/or stop-loss providers.
It is important to note that employers are not required by law to provide health insurance to their employees. However, the Affordable Care Act (ACA) imposes a penalty on employers with 50 or more full-time employees who fail to provide health coverage to at least 95% of their full-time employees. This penalty is assessed by the IRS, and it is meant to encourage employers to provide health insurance to their employees without mandating it.
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Family status
Employers can offer different levels of benefits to different classes of employees, as long as these decisions are not made on a discriminatory basis. For example, it would be illegal for an employer to provide health insurance to women but not men, or to employees without disabilities but not employees with disabilities.
One way to classify employees is by their family status. Employers can offer different allowances to employees based on their family status, such as single, married, or employees with dependents. For instance, an employer could offer $500 a month to single employees and $800 a month to those with a family.
In addition to family status, employers can also vary allowance amounts based on employee age and geographic location. However, it is important to note that employers cannot categorize employees into different classes based on job title, salary, hourly rate, seniority, or whether the employee works in or out of state.
When offering different allowances based on family status, employers must comply with federal laws that prohibit discrimination. This means that employers cannot provide different levels of health insurance coverage based on an employee's family status in combination with other protected characteristics, such as age, race, sex, and disability.
Furthermore, minimum class size requirements may apply if an employer offers different benefits to different employee classes. For example, if an employer chooses to offer both an Individual Coverage Health Reimbursement Arrangement (ICHRA) and a traditional group health plan based on full-time or part-time status, there must be a minimum of ten employees in each class.
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Frequently asked questions
Common classes of employees for whom employers may consider having different health benefit strategies include:
- Hourly vs. salaried
- Exempt vs. non-exempt
- Full-time vs. part-time
- Employees who are non-resident aliens with no US-based income, including foreign employees who work abroad
- Employees who receive a salary as wages
- Employees such as hourly workers who do not receive a salary as wages
Yes, employers can offer different health insurance plans to different classes of employees as long as those decisions are not made on a discriminatory basis. For example, employers can offer a "gold plan" to full-time workers and a lower-quality "silver plan" to part-timers.
When offering different health benefits to different classes of employees, employers must ensure that:
- The distinctions are clearly communicated to all employees
- The insurance carriers and/or stop-loss carriers approve the distinctions
- The design complies with Non-Discrimination rules, such as Section 125 and §105(h) Nondiscrimination Rules
If an employee moves between classes, any unused funds can be transferred to the new class/new individual coverage HRA group. Additionally, if an employee loses their ICHRA coverage, they may qualify for a special enrollment period (SEP) to obtain individual health insurance coverage.
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