Employee benefits can be a complex topic that many employers struggle to navigate. A common question that many employers have regarding benefits is whether they can offer different employee benefits packages to different groups. The simple answer to this question is yes; however, there are some key factors to consider before deciding to offer different employee benefits packages.
Learn more about the legality of offering different benefits packages and how to properly differentiate employee benefits packages based on the group type.
Can Employers Offer Different Benefits Packages To Different Employees?
There are currently no laws that require plans to provide the same benefits coverage to all employees. Some states in the U.S. do govern how certain benefits are handled, such as paid sick leave, which applies to all employees.
Employers do have the right to offer different benefits to different employees under certain conditions. An employer must approach “similarly situated individuals” with equality, meaning all employees within a designated “class” created by the business must receive benefits at the same level. Employers have flexibility in the way that their benefits plans are structured for each group.
Companies must create employee benefits packages that are based on bona fide employment-based classification. This means that benefits are not based on any discriminatory criteria, such as age, race, religion, sexual orientation, disability, or gender. For example, an employer can offer healthcare coverage to full-time employees but cannot offer healthcare coverage to only male employees or employees of a certain race.
Some laws mandate that certain employers offer benefits. The Patient Protection and Affordable Care Act (PPACA) requires any employer with 50 or more employees to offer healthcare coverage or pay a penalty. This law does not require coverage for part-time employees.
What Are Similarly Situated Employees?
Employees that fall within a certain group of similarly situated employees may receive a different benefits package than another group of similarly situated employees. Distinctions between different employee benefits packages may include eligibility rules, pricing, or various restrictions. Any distinctions must directly relate to a worker’s status within the organization and reflect an employer’s usual business practice.
Examples of classifications that may reflect similarly situated employees or distinct groups include:
- Participants or beneficiaries
- Full-time employees or part-time employees
- Union members or nonunion members
- Employees hired on various dates
- Memberships in collective bargaining units
- Current employees vs. former employees
- Employees employed in different geographic locations
How Should Benefits Packages Be Differentiated For Different Groups?
Employees may fall into different employment classes based on their earnings, the length of their employment, or other distinctions. Equal employment opportunity regulations enable employers to offer different benefits to various groups of employees based on these distinctions. However, companies must ensure that their benefits packages are nondiscriminatory.
Companies may choose to offer different employee benefits to different groups based on the following categories:
1. Employee Benefits Based On Seniority
Many businesses choose to provide different employee benefits packages to different groups based on seniority. Employees may become eligible for bigger or better benefits packages once they reach certain milestones established by the company. For example, some benefits may become available to employees once they have worked for the business for at least 10 years. Benefits packages may also become available to workers who were hired at various times. However, this practice must be widespread across the organization.
2. Employee Benefits Based On Position
Some businesses may also offer different employee benefits packages to different groups based on position. For example, a retail store usually has a job hierarchy consisting of positions like sales associates, cashiers, customer service representatives, store managers, and assistant store managers. Each group may receive a different benefits package based on their position. However, the store cannot assign employees with the same roles into different classes.
How Can Employers Prevent Discrimination In A Benefits Package?
Employers need to understand the differences between discrimination and unfairness when approaching issues with employee benefits packages. Discrimination refers to the prejudicial or unjust treatment of different people, specifically on the basis of age, race, religion, sexual orientation, disability, or gender. In comparison, unfairness refers to a lack of equity, meaning not everyone is treated the same way.
The law states that employees can be offered different benefits packages if an employer can demonstrate that the individuals fall into different bona fide employment-based classifications. For example, it is acceptable to offer full-time workers different benefits than part-time workers. It is also okay to offer senior-level employees different benefits if they were “grandfathered in” with an old benefits plan.
Speak With An Employee Benefits Consulting Firm
It is the responsibility of employers to ensure that their employee benefits packages are nondiscriminatory and comply with all applicable employment laws and regulations. For more information about offering different employee benefits packages to different groups, reach out to the knowledgeable employee benefits consultants at New City Insurance.