Which employees belong in which ICHRA class is a written rule, not a job-title decision.

The permitted classes

Under the individual coverage HRA rules, an employer can define classes of employees by full-time or part-time status, salaried or hourly pay, seasonal status, coverage under a collective bargaining agreement, a waiting period, work location in a particular rating area, and temporary employment through a staffing firm. Some employers also use non-resident aliens with no U.S.-source income as a class. Classes can be combined, so full-time hourly employees in one rating area can be a class of their own. What you cannot do is invent a class, such as sales or service staff, that is not on the list.

Within a class the allowance has to be offered on the same terms to everyone. The one built-in flexibility is that the allowance can rise with an employee age and with the number of family members covered, within the limits the rules allow. Counsel should review the class definitions, and when a group plan is offered to some classes and an ICHRA to others, minimum class size rules can apply to certain classes.

Six steps to a clean class structure

1. List every employee with pay basis, scheduled hours, work location, hire date and any union coverage. A current census is the best starting point.
2. Write the definitions. Decide how many hours separate full-time from part-time, what counts as seasonal, and how long the waiting period is. A waiting period can run up to 90 days.
3. Match each employee group to the permitted classes. If a group fits two classes, write which one controls so no one is left in a gap or counted twice.
4. Check the cost of each class. Model the monthly allowance against the number of employees in the class before you commit.
5. Test affordability for every class. A class that fails is a problem even if the average passes.
6. Put the rule in the plan document and the employee notice, and apply it the same way every year.

An illustrative example

Take a service business with about forty employees. The table shows how its workforce could map to classes. The groups and rules are illustrative, and the real definitions need counsel review.

Illustrative only. Job titles such as technician or manager are used here only to describe who sits in each class. They are not classes themselves.

Common mistakes

• Using job titles as classes, such as giving sales staff a different allowance than service staff without a matching permitted class.
• Changing definitions from year to year without a reason, which makes treatment look arbitrary.
• Letting a manager move an individual between classes at discretion instead of by a written rule.
• Forgetting to say which class controls when an employee fits more than one.
• Setting classes before testing affordability, then discovering one class fails.

If you want the classes tested against your own census, our fit analysis and the allowance calculator are the next steps, and we can run both for you.