Guide to ICHRA Employee Classes

Individual coverage health reimbursement arrangements (ICHRAs) are flexible, personalized benefits that allow employers to offer tax-free contributions for individual health insurance premiums and potentially other out-of-pocket medical expenses. You can even offer different contribution amounts to different groups of employees. One way employers do this is by organizing their workforce into employee classes.

Employee classes help employers tailor their ICHRA to fit the needs of their workforce using legitimate job-based criteria. However, federal regulations specify which categories employers may use when designing their health benefits. Understanding how employee classes work helps ensure your ICHRA stays compliant throughout the plan year.

Employee class

Description

Full-time employees

Employees who meet your organization’s definition of full-time status (employers can either use the Section 105(h) or 4980H definition. This is typically 30, 35, or 40 hours per week. Note: If you're using an ICHRA to meet the ACA’s employer mandate requirements, you must consider full-time employees as those who work an average of at least 30 work hours per week.

Part-time employees

Employees who work fewer hours than your standard full-time staff.

Seasonal employees

Workers hired for specific periods or seasonal business needs, using the Section 105(h) or 4980H definitions.

Collective bargaining agreement employees

Employees with benefits negotiated through a union contract or collective bargaining agreement in which the plan sponsor (employer) participates.

Employees in a waiting period

Employees who haven’t yet satisfied the employer’s benefits waiting period.

Salaried workers

Employees who receive a fixed salary rather than hourly wages.

Non-salaried employees

Hourly employees or other non-salary workers.

Geographic location

Employees working in the same insurance rating area, state, or region.

Temporary employees from staffing firms

Workers placed through staffing companies or temporary employment organizations.

Non-resident aliens with no U.S. income

Employees working abroad without U.S.-based income.

Combination of classes

Groups formed by combining two or more permitted classes (for example, full-time employees in a specific state).

Adjusting ICHRA allowances by age or family size

While employees within the same class must generally receive the benefit on the same terms, the ICHRA final rules permit employers to vary monthly contribution amounts based on age or family size:

Age. Employers may give higher contribution amounts to older employees within a class. However, the highest allowance can’t exceed three times the amount offered to the youngest employees in the same class.
Family size. Employers can also offer larger contributions to employees who cover spouses or qualified dependents through their individual health plan. This can help offset the higher health insurance premiums families pay compared to those for individual coverage for a single employee.

Outside of these two variations, you must offer the benefit on the same terms to every employee within the same class. If you don’t, you may violate federal nondiscrimination rules.

Workforce size

Minimum employees per class

Fewer than 100 employees

At least 10 employees

100–200 employees

At least 10% of your total employees

More than 200 employees

At least 20 employees

Minimum class requirements apply only if you’re offering both a traditional group health plan and an ICHRA, and you’re using the following ICHRA classes: salaried, non-salaried, full-time, part-time, and employees in the same geographic area (if the area is smaller than the state level, such as a rating area). These minimum class size rules also apply to any combination classes that include one of those applicable classes.

If you’re only offering an ICHRA, the minimum class size rules don’t apply.

Remodel Health can help you design the right ICHRA strategy

Determining employee classes is an important step when setting up your ICHRA. By organizing employees into categories, you can better control your budget and customize your health benefits package, all while meeting federal regulations.

Remodel Health can help you design compliant ICHRA classes and determine the right contribution strategies so you can build the best benefit solution for your organization. Whether you need a simple benefit design or want something more complex, we’re here to help you stay within the guidelines so you can launch a successful ICHRA.