HSA Comparability For Full-Time, Part-Time And Former Employees
Employment status is the second filter in the comparability test. This guide explains the three employee categories, where the 30-hour line falls and how former employees are handled.
Three Employee Categories And No Others.
General information, not legal or tax advice. Statutes and rules change, so read the current text before you act.
The Full Comparability Framework
The overview page places employee categories next to coverage tiers, the excise tax and the cafeteria plan alternative.
Coverage Tiers Within Each Category
Each employee category is tested again by coverage tier, so a part-time family-coverage group is its own test.
Correcting A Missed Group
If a category was skipped, additional contributions with interest can still be made through April 15 of the following year.
Full-Time, Part-Time And Former.
The regulation recognizes three categories and calls them the exclusive categories for testing: current full-time employees, current part-time employees and former employees. An employer cannot create a fourth by job title, department or seniority. Part-time means customarily employed fewer than 30 hours per week, and the two current-employee groups are tested separately, so the part-time deposit may differ from the full-time deposit as long as every comparable part-timer receives the same treatment.
Former employees form their own group. If you deposit funds for any eligible former employee, every eligible former employee with the same category of coverage must get a comparable deposit. Employers are expected to take reasonable steps to find them, such as certified mail or the IRS and Social Security letter-forwarding programs. A former employee who has the employer’s high deductible coverage through COBRA is outside the test.
Two other groups sit outside the categories. Employees in a bona fide collectively bargained unit, where health benefits were bargained in good faith, are not comparable participating employees. People who are not employees, such as independent contractors, are not covered either.
Partial Years And Late Starts.
Employees who start or leave mid-year are counted for each month they are eligible, and the amount is pro rata. The regulation allows three funding approaches: pay-as-you-go, where equal amounts go out at the same time for the same coverage category; a look-back at year-end; or pre-funding the full year for those eligible on day one. Whichever is chosen, it must be applied consistently to all comparable participating employees, and anyone hired after the initial deposit must receive their share.
An employer may also deposit the full annual maximum for everyone eligible in the last month of the year. If late hires receive more than a pro rata share, all comparable late hires must receive the same.
Mapping The Workforce.
Export a monthly roster that shows hours, status and coverage tier for every employee and every former employee who is still eligible. Flag collectively bargained staff and COBRA participants so they are excluded on purpose, not by accident. Confirm the 30-hour classification against what employees customarily work, not their title.
Mistakes To Avoid.
Do not favor a class, such as managers or non-managers, with a deposit the other class does not receive. A difference by geography can be acceptable only where no employee at the excluded location is covered by the employer’s high deductible plan, and a difference by division is not. Do not forget that an employee with no HSA yet is still counted: the regulation offers a written-notice safe harbor for that case.
Related Topics For Plan Sponsors.
Worker Classification And Benefits Eligibility
Who counts as an employee for plan purposes.
Michigan Employer COBRA Guide
Continuation coverage, which matters for former-employee contributions.
Employment Law For Michigan Employers
The full map of employment topics that touch benefits.
Laws And Sources Referenced
The statements above rely on the following primary sources.
Internal Revenue Code section 4980G — Tax on employers that fail comparability for HSA contributions.
Treas. Reg. 54.4980G-3 — Employee categories, part-time definition, former employees and collectively bargained employees.
Treas. Reg. 54.4980G-4 — Calculating comparable contributions, funding methods, correction and the notice safe harbor.
IRS Publication 969 — IRS guidance on HSAs, including employer comparability and the 35 percent tax.
Quick Answers.
Short replies to common questions about employee categories.
Who counts as part-time for the HSA comparability test?
An employee who is customarily employed for fewer than 30 hours per week is part-time under the regulation. Employees customarily working 30 or more hours are full-time. Part-time and full-time employees are tested separately.
Do we have to contribute for former employees?
Only if you contribute for any eligible former employee. Once you do, all comparable former employees with the same category of coverage must receive a comparable amount. Former employees who hold the employer’s high deductible coverage through a COBRA election are not comparable participating employees.
Are union employees included?
Not if they are in a unit covered by a bona fide collective bargaining agreement under which health benefits were bargained in good faith. They are not comparable participating employees, and former employees who were in that unit are excluded too.
More Guides In This Series.
What Comparability Means For Employer HSA Contributions
The core rule, what it measures and what sits outside it.
HSA Comparability Categories: Self-Only And Family Coverage
How self-only and family tiers are tested apart.
The 35 Percent Excise Tax On Non-Comparable HSA Contributions
How the tax is computed and how to correct a miss.
Using A Cafeteria Plan Instead Of HSA Comparability
The cafeteria plan route and the testing it brings.
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