Administering your company’s health reimbursement arrangement (HRA) comes with its own set of challenges and questions. In this article, we cover 5 tips you can use to administer confidently and legally. Along the way, we also mention a few of our favorite tools to help you succeed in your HRA journey.
Tip 1: Determining an HRA allowance
At first glance, determining an allowance can feel a bit overwhelming, and if you don’t do it thoughtfully, you may find yourself between a rock and a hard place. Over-reimbursing your employees could result in issues with the IRS, whereas under-reimbursing is illegal and will most likely result in employee turnover.
Before determining your company’s reimbursement allowance, you should take the following into consideration:
Maximum monthly/annual allowances:
- QSEHRA : In our article on 2020 contribution limits, we report that “in 2020, small businesses may offer up to $5,250 per year per self-only employee and up to $10,600 per year per employee with a family.”
That calculates out to $437.50 per month for individuals and $833.33 per month for employees with families.
- ICHRAⓘ: As opposed to the QSEHRA, the ICHRA does not have contribution limits. This allows the employer to give as much or as little as they want. However, the contribution amounts must be consistent within each employee class.
- Group HRAⓘ: Similar to the ICHRA, group HRAs do not have contribution limits.
Budgeting and rollovers
The next point of consideration is how much you can contribute to your employees. Of course, this amount must be calculated on a case-by-case basis. If you are unfamiliar with budgeting best practices, we recommend you meet with a certified public accountant or small business financial advisor.
Finally, you will also need to determine if your budget allows for monthly or annual rollover or not. Offering rollover sums could result in higher single-use costs for your business, so it is important to keep that in mind.
Some businesses decide to allow rollover month-to-month, but restart the sum at the end of each year. Other businesses allow annual rollover. Here, the choice is up to the business owner.
Tip 2: Choosing which employees are eligible
The next tip for managing your company’s HRA is about how to identify which employees are eligible for reimbursement. This will depend on the type of HRA your company participates in and the individual circumstances of your employees. Here’s how eligibility works for the most popular HRAs:
- QSEHRA: With the QSEHRA, all full-time employees are eligible to participate. In this particular type of HRA, if part-time employees are included, they must all be included. The most common distinctions companies make are by the employee’s marital status, e.g. whether they are single, or have a family.
- ICHRA: When it comes to the ICHRA, employers have an increased degree of control over which employees are reimbursed and how much based on employee class. For example, full-time employees can be distinguished from part-time employees, etc.
- Group coverage HRA: In group HRAs, all employees that already participate in a company’s group health insurance plan can be reimbursed through the HRA. Employees that do not participate in the group insurance plan cannot qualify to participate.
Click HERE to learn more about the differences between QSEHRA and ICHRA
Tip 3: Reimbursing employees
When it comes to reimbursing employees, employers should keep the following in mind:
First, employers must set a specific time period for reimbursement and communicate it to employees. At PeopleKeep, we generally encourage employers to reimburse within 30 days.
Second, the form of record-keeping and the time frame in which employers make the reimbursement are generally more important than the payment method.
Most employers that we interact with will simply add a line item on their employees’ paychecks, but it’s also possible to pay in cash or cut a separate check.
Tip 4: Keeping track of reimbursement expenses
The IRS requires that employers keep records of reimbursements for 7 years. This includes receipts, reimbursement payments, proof of purchase eligibility, and more.
It can be overwhelming to keep track of all of this information, so most HRA administrators use specific tools designed to solve this problem.
Many administrators turn to Excel spreadsheets. While this option is certainly inexpensive on the front end, it’s all too easy to make errors and lose data. It only takes a power outage, a laptop thief, or a computer virus to lose a month’s hard work.
The easiest and most secure method is to find a benefits software that is capable of storing employee data, receipts, and reimbursement records.
Tip 5: Preparing legal plan documents
The final tip is to make sure to have legal plan documents for an HRA in place. These documents are regulated by the IRS, and if incorrectly prepared, could result in hundreds of dollars in penalty fees within a matter of a few days.
HRA administrators should procure legal plan documents from someone who has experience producing them. If a business owner or manager plans on administering and tracking an HRA on their own, we recommend that they at least employ an attorney to produce the documents. It’s worth noting that hiring an attorney can be costly up front, and there could be additional fees if amendments need to be made.
The cheapest and most convenient option is to leverage the services of an HRA software provider. PeopleKeep, for example, prepares legal plan documents, allows administrators to make plan changes, and stores documentation as part of its service offering to its customers.