Your full-time manager gets health insurance. Your part-time cashier gets a name tag and a heartfelt “we appreciate you.” Is that even allowed, or is HR about to earn some overtime?
Surprisingly, it usually is legal. You don’t necessarily have to offer identical health benefits to everyone on your payroll. But there’s a difference between separating employees into legit groups and handing out benefits based on who laughs the hardest at your bad jokes.
Can different jobs have different benefits?
Usually, employers can offer different benefits based on legitimate employment classifications, including full-time versus part-time status, job locations, or other established employment categories.
If you run a business with 20 employees, you could potentially offer health insurance to your 12 full-time workers without extending it to the eight part-timers, assuming that your plan terms and any applicable laws allow it.
But before you start dividing and conquering, there’s another rule to keep in mind. Under the Affordable Care Act, businesses that averaged at least 50 full-time employees and full-time equivalents (FTEs) during the previous year usually face additional coverage requirements. FTEs account for part-time employees’ combined hours when determining the size of your workforce. (And if you missed it before, here’s how to calculate your FTEs.)
To avoid potential penalties, these employers usually have to offer coverage to at least 95% of their full-time employees and their dependent children. Affordability and minimum-value requirements also come into play.
And here’s a detail to keep in mind. For ACA purposes, full-time generally means an employee who averages at least 30 hours per week or 130 hours per month.
So, you can offer different benefits to different groups. But there’s a point where different benefits stop being a business decision and start becoming a legal problem.
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When different benefits cross the line
You can divide employees into legitimate groups, but the key word here is legitimate. You can’t use those groups as an excuse to discriminate.
Classifications can’t be a cover for discrimination based on protected characteristics like race, sex, age, religion, national origin, or disability. If a classification is really a stand-in for one of those, you could have a legal problem, not just an HR headache.
On the health side, federal health plan nondiscrimination rules usually prohibit employers from denying eligibility or charging an employee more than similarly situated coworkers because of their medical history, health conditions, or other prohibited health facts.
Certain plans, including self-insured medical plans and Section 125 cafeteria plans, have additional nondiscrimination rules designed to prevent preferential treatment of highly compensated employees. Violate those requirements, and you could face tax consequences. In other words, giving your favorite executive special benefits could create a tax problem that’s even more expensive than their premium.
Before offering different benefits, establish clear employment classifications, document eligibility rules, and check that everything complies with your plan terms and applicable laws. It’s also worth having an insurance broker or benefits administrator review your setup. Your benefits package doesn’t have to be one-size-fits-all. Just make sure that the eligibility rules are based on actual classifications, not who’s currently winning Employee of the Month.
