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Using Employee Classes with Premium Reimbursement to Recruit and Retain Key Employees

Written by: PeopleKeep Team
July 29, 2014 at 2:00 PM

Recruiting and retaining great employees is important to every company; from major global corporations to the newest small business. Getting the best talent requires you to give them great compensation, and health benefits are a key part of the compensation you offer. 


To offer great health benefits small businesses are increasingly using premium reimbursement programs to reimburse employees for individual health insurance.

A common question about premium reimbursement is "Can I give different allowance amounts to different employees?" 

Using Employee Classes to Recruit and Retain Employees Makes Business Sense

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 health benefits that vary by class of employee?

Employers can use a premium reimbursement plan to create 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.

Employee Classes Example - Recruiting and Retaining Programmers

To illustrate how using employee classes does this, consider a technology startup company who struggled to hire and keep senior programmers in a very tight labor market.

Instead of offering the same health plan to all employees, the company created separate classes for junior and senior programmers; giving senior programmers $350 more per month in their healthcare allowance. This large increase helps the company reduce attrition among senior programmers. Plus, it creates a visible incentive for junior programmers to grow with the company and move into a senior programmer role.

Providing Class-Specific Health Benefits is Clearly Allowed by ERISA and HIPAA

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." (See 29 CFR §2590.702.)

To comply with these regulations, employee classes within the premium reimbursement plan (usually set up with a self-insured medical reimbursement plan) 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. 

  • Spell out the requirements for classes and benefits in the ERISA plan document.

What questions do you have about employee classes and premium reimbursement? Leave a comment below.

The Comprehensive Guide to the Small Business HRA

Topics: Premium Reimbursement, Employee Retention