How to Calculate Employee Classes by Role: 2026 ICHRA Guide

Employee classes let an employer structure an Individual Coverage Health Reimbursement Arrangement (ICHRA) around objective workforce categories. The rules are specific: an employer may use the classes permitted by federal regulations, but may not invent a class based only on job title, performance, health status, or a preferred group of employees.

This guide explains how to map employees to compliant classes, determine when minimum class sizes apply, and coordinate allowances with 2026 affordability testing. It is general information, not legal or tax advice; plan documents and employee-specific facts control.

What counts as an ICHRA employee class?

The federal ICHRA rules permit 11 classes, including the class created by combining two or more permitted categories. The classes are:

1. Full-time employees
2. Part-time employees
3. Salaried employees
4. Non-salaried employees, including hourly employees
5. Employees whose primary site of employment is in the same rating area
6. Seasonal employees
7. Employees included in a collective bargaining unit in which the plan sponsor participates
8. Employees who have not satisfied a permitted waiting period
9. Nonresident aliens with no U.S.-based income
10. Temporary employees of a staffing firm
11. A combination of two or more of the permitted classes above

The departments' official HRA FAQ and the final ICHRA regulations provide the controlling class framework.

How to calculate employee classes by role

Step 1: Audit objective workforce data

Start with facts that map to a permitted class. For each employee, document:

• Full-time or part-time status under the definition selected in the plan
• Salaried or non-salaried status
• Primary site of employment and the applicable insurance rating area
• Seasonal status
• Collective bargaining unit status
• Whether the employee is still in a permitted waiting period
• Whether the employee is a nonresident alien with no U.S.-based income
• Whether the employee is a temporary worker employed by a staffing firm
• Hire date and any genuine change in employment status

Do not substitute internal titles such as manager, executive, technician, sales representative, or top performer for a permitted class. A job title can help identify duties internally, but it is not itself an ICHRA class.

Step 2: Map employees to permitted classes

Core employment classes

• Full-time employees
• Part-time employees
• Salaried employees
• Non-salaried employees

The plan must state which permitted definition it uses for full-time, part-time, and seasonal status. Apply that definition consistently rather than assigning employees case by case.

Specialized classes

• Seasonal employees
• Employees in a covered collective bargaining unit
• Employees in a permitted waiting period
• Nonresident aliens with no U.S.-based income
• Temporary employees of a staffing firm

These classes depend on objective legal or employment facts. Keep the records that support each assignment.

Location-based classes

An employer may classify employees whose primary site of employment is in the same insurance rating area. A class may also cover a state or a combination of two or more entire states. Remote-work and transfer situations require careful application of the primary-site rules; a mailing address alone is not always the controlling fact.

Combined classes

An employer may combine permitted classes, such as full-time employees in a particular rating area. A combination does not create permission to use an otherwise prohibited factor, and some combinations trigger the minimum-class-size rule described below.

Step 3: Assign one coverage approach to each class

An employer may offer a traditional group health plan to one permitted class, an ICHRA to another, and no employer health coverage to another, subject to other applicable laws. It may not offer employees within the same class a choice between a traditional group health plan and an ICHRA.

Record the class definition, coverage approach, eligibility date, and allowance formula in the plan documents before enrollment and payroll setup.

Step 4: Set the ICHRA allowance on the same terms

Employees in the same class must receive the ICHRA on the same terms. Different permitted classes may receive different allowance amounts. Within a class, the allowance may vary based on age or number of dependents if the formula is available to every participant on the same terms. Age-based variation cannot exceed a 3-to-1 ratio between the oldest and youngest participants.

Use a written formula instead of discretionary adjustments. Payroll and reimbursement records should be able to reproduce the amount for every employee.

Step 5: Test whether a minimum class size applies

The minimum-class-size rule does not apply to every ICHRA. It applies only when an employer offers a traditional group health plan to at least one class and an ICHRA to at least one other class, and the ICHRA class is one of the specified classes or combinations covered by the rule.

The rule generally applies to an ICHRA class based on salaried versus non-salaried status, full-time versus part-time status when the other status receives the traditional plan, or a rating area smaller than an entire state. It can also apply to combinations containing one of those classes, with a specific exception for certain combinations with the waiting-period class.

When the rule applies, the class offered the ICHRA must include at least:

• 10 employees when the employer expects to employ fewer than 100 employees on the first day of the plan year
• 10 percent of all employees, rounded down to a whole number when the employer expects to employ 100 to 200 employees
• 20 employees when the employer expects to employ more than 200 employees

Count employees offered the ICHRA in the class as of the first day of the plan year, not only employees who enroll. Review the exact scope and exceptions in the final regulations before relying on a class-size calculation.

Step 6: Run 2026 affordability testing

Applicable large employers should test affordability for each full-time employee because premiums and allowances can vary by employee. For 2026, the required contribution percentage is 9.96 percent, as stated in IRS Revenue Procedure 2025-25.

For ICHRA affordability, the employee's required contribution generally starts with the monthly self-only premium for the lowest-cost silver plan available in the employee's rating area and subtracts the monthly self-only ICHRA amount, with a floor of zero. Employers may be able to use the location, age, look-back-month, W-2 wages, rate-of-pay, and federal-poverty-line safe harbors when their requirements are satisfied. See the IRS affordability guidance.

Step 7: Coordinate notices and coverage substantiation

Provide the required written ICHRA notice at least 90 days before the start of the plan year. For an employee who becomes eligible after the plan year begins, provide it no later than the date the employee first becomes eligible. The federal model notice is a useful starting point.

The plan must also substantiate that participants and covered dependents have individual health insurance or Medicare for the relevant coverage period. Keep enrollment, attestation, reimbursement, and payroll processes aligned.

ICHRA employee-class implementation checklist

• Use only a federally permitted class or permitted combination.
• Write the definition used for full-time, part-time, and seasonal status into the plan.
• Document each employee's objective class assignment.
• Assign one coverage approach to each class.
• Apply one written allowance formula on the same terms within each class.
• Test the minimum class size when a traditional group plan and an ICHRA are offered to different classes.
• Run employee-level affordability testing if the employer is subject to the employer mandate.
• Deliver the required notice and substantiate individual coverage.
• Reconcile eligibility, allowances, payroll, and reimbursements before each plan year and after status changes.

Common employee-class mistakes to avoid

• Creating a class for managers or executives. Management level and job title are not standalone permitted classes.
• Letting employees in one class choose between a group plan and an ICHRA. The coverage approach must be uniform within the class.
• Assuming every class needs at least 10 employees. The minimum applies only in specified hybrid-offer situations.
• Counting only employees who enroll. When the minimum applies, count employees offered the ICHRA in the class on the first day of the plan year.
• Using one affordability result for everyone. ICHRA affordability depends on employee-specific premium and allowance data, subject to available safe harbors.

Frequently asked questions

Can I create ICHRA classes based on job titles or management level?

No. Job title, management level, performance, compensation band, and health status are not standalone ICHRA classes. Use only a federally permitted class or a permitted combination of classes, and apply the written criteria consistently.

What happens if an employee changes from one class to another?

Apply the plan's written eligibility and effective-date rules consistently. A genuine employment-status change may move an employee into a different permitted class, but the timing, notice, allowance, and payroll treatment should follow the plan documents and applicable law.

Must an employer offer an ICHRA to every employee class?

No. An employer may offer a traditional group health plan, an ICHRA, or no employer health coverage to different permitted classes. Employees within the same class must receive the ICHRA on the same terms, and applicable employer-mandate rules still apply.

How many ICHRA employee classes can an employer create?

The federal rules do not set a separate numeric maximum. Every class must be one of the permitted classes or a permitted combination, must use objective criteria, and must satisfy the same-terms and minimum-class-size rules when those rules apply.

How do employee classes affect ICHRA affordability?

For an applicable large employer, affordability is tested employee by employee. For 2026, the required contribution percentage is 9.96 percent. The employee's required contribution generally starts with the self-only premium for the lowest-cost silver plan available in the employee's rating area and subtracts the monthly self-only ICHRA amount, subject to the governing rules and any safe harbors used by the employer.

Build the class structure before enrollment

A reliable ICHRA setup starts with objective employee data, written class definitions, and a documented allowance formula. Validate the class structure, minimum-size requirements, and affordability results before notices go out or payroll deductions begin. SimplyHRA can help employers coordinate ICHRA administration, but legal and tax advisers should review decisions that depend on workforce-specific facts.