ICHRA employee classes: how to vary your allowance

Why classes exist

One of the ICHRA’s defining features is that you don’t have to treat everyone identically. You can group employees into classes based on objective, job-related criteria and give each class a different allowance — or offer the benefit to some classes and not others. That lets you direct your budget: more for the groups you most want to recruit and retain, less (or nothing) for others, all within the rules.

The 11 permitted classes

Federal rules define eleven classes you can use: full-time, part-time, seasonal, salaried, hourly (non-salaried), employees in a waiting period, temporary employees of staffing firms, foreign employees who work abroad, employees covered by a collective bargaining agreement, employees grouped by geographic rating area, and any combination of these. Classes have to rest on these legitimate criteria — you can’t draw a class around one person or around health status. (Note: some ICHRA administration platforms support only a subset of the eleven.)

Varying within a class

Once you set a class, everyone in it must get the same offer — with two permitted adjustments. You can offer older employees a larger allowance than younger ones, but the oldest can’t receive more than three times the youngest (a 3-to-1 ratio that mirrors how individual premiums are age-rated). And you can offer more to employees with families than to single employees. Beyond age and family size, the offer has to be identical across the class.

Minimum class sizes

Here’s the rule that trips employers up. If you offer a traditional group plan to one class and an ICHRA to another, the ICHRA class has to meet a minimum size — a guardrail meant to stop employers from steering only their costliest employees into the individual market. The minimum is 10 employees for companies with fewer than 100 employees, 10% of the workforce for 100–200 employees, and 20 employees for more than 200. The key qualifier: this applies only when a group plan runs alongside the ICHRA. Offer an ICHRA on its own, with no group plan, and there are no minimum class sizes at all.

The new-hire rule

A common and useful exception: you can keep existing employees on the group plan they’re used to and offer new hires an ICHRA going forward. The new-hire class is treated separately and isn’t subject to the minimum-size rule, which makes it a clean way to shift toward defined contribution without disrupting current staff. One structural rule holds throughout, though: you can never offer the same class both a group plan and an ICHRA — it’s one or the other per class.

The bottom line

Classes are what make the ICHRA flexible: eleven permitted categories, the same offer within each (adjustable for age and family size), and minimum sizes only when a group plan runs alongside. Used well, they let you target your budget precisely; used carelessly, they can trip the size rules or the anti-discrimination limits. Map your classes with a benefits advisor before you lock them in. This is general information, not tax or benefits advice.