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Small Business Employee Benefits and HR Blog

Using HRA Classes to Recruit and Retain Key Employees

Recruiting and retaining great employees is important to every company-from major global corporations to the newest small business. Getting the best people requires you to give them great compensation. Your health benefit plan is a key part of the compensation you offer. Health Reimbursement Arrangement, or HRA, is an IRS approved, employer-funded, tax advantaged employer health benefit plan that reimburses employees for out of pocket medical expenses and individual health insurance premiums. A common question about HRAs for a small business is "Can I give different HRA amounts to different employees?" recruiting and retaining key employees hra classes

Using HRA 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 benefits that vary by class of employee?

Employers can use an HRA 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.

HRA Classes Example - Recruiting and Retaining Electricians

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.

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

The Comprehensive Guide to the Small Business HRA

Photo credit: Hubspot

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