What defines an employee class?

Providing different levels of benefits to classes of employees is at the core of benefits compensation and is routinely done by major corporations. Federal regulations state that “a plan or issuer may treat participants as two or more distinct groups of similarly situated individuals if the distinction between or among the groups of participants is based on a bona fide employment-based classification consistent with the employer's usual business practices.”

With salary and other types of compensation, employers routinely compensate groups of employees differently. Field sales people are compensated differently than sales managers. Some employees get company cars, while others earn quarterly bonuses. Because health benefits are such an important part of compensation, why not provide benefits that vary by class of employee?

Zane Benefits creates employee classes that offer benefits tailored to your company’s objectives, transforming your health benefit plan into a tool to find and keep great people.

To illustrate how using classes does this, consider an electrical contracting company who struggled to hire and keep journeymen electricians in a very tight labor market. Instead of offering the same health plan to all employees, the company created separate classes for apprentices and journeymen and gave journeyman $350 more per month in their HRA. This large increase helps the company reduce attrition among journeyman. Plus, it creates a visible incentive for apprentices to complete the education required to become journeymen.

To comply with these regulations, employee classes within the HRA must:

Be based on bona-fide business differences. These may include job categories, geographic location, part-time or full-time status, date of hire, etc.
Treat all “similarly situated” employees equally. By creating classes based on genuine job categories, all employees within a class will be “similarly situated”.
Not discriminate against unhealthy people. An employer cannot provide inferior benefits to specific individuals with adverse health conditions. (However, the law does permit employers to provide superior benefits to individuals with adverse health conditions.)
Spell out the requirements for classes and benefits in the ERISA plan document.

If, upon audit, an HRA plan is found to not comply with these rules, then the employer must provide the same level of benefits to all employees, regardless of their class, from the time the HRA was created to the date of the violation.

Zane Benefits allows you to make the most of employee classes within your company’s HRA. Specifically, Zane Benefits:

Helps you create employee classes and provides advice about how to structure these classes to meet the ERISA and HIPAA requirements described above.
Enables you to customize the benefits for each class.
Substantiates claims in accordance with IRS rules and retains a seven-year record of all substantiated expenses for audit purposes.
Provides reports that show how each class benefits from the HRA.
Generates legally required plan documents and helps you distribute them to employees.

This document has been prepared solely for the purpose of providing information based on legal and tax advice provided to Zane Benefits, Inc. However, it is not meant to provide legal or tax advice for entities other than Zane Benefits. No representation is made as to the completeness or accuracy of the information herein. As such, it should not be used as a substitute for consultation with professional employment law specialists, tax accountants, attorneys, or other advisors. To comply with U.S. Treasury Regulations, we inform you that, unless expressly stated otherwise, any tax information contained in this communication is not intended to be used and cannot be used by any taxpayer to avoid penalties under the Internal Revenue Code.