Varying Benefits by Employee Class: 2026 ICHRA Guide

TL;DR

Varying benefits by employee class means offering different health benefit allowances to different groups of workers based on IRS-approved criteria like employment status, location, or schedule. The Individual Coverage HRA (ICHRA) makes this possible through 11 recognized employee classes. Employers must follow specific rules, including equal treatment within each class, a 3:1 age variation cap, and minimum class size thresholds when mixing ICHRA with group coverage. This approach gives businesses predictable costs while tailoring benefits to a diverse workforce.

Varying benefits by employee class is the practice of offering different health benefit allowances or eligibility levels to distinct groups of employees, based on job-related criteria approved by the IRS. In practical terms, it means a company can give its full-time workers one monthly reimbursement amount and its part-time workers a different amount, all within a single, compliant benefits plan.

This concept exists almost entirely within the ICHRA framework. Before ICHRA took effect in January 2020, using an HRA to reimburse individual health insurance premiums was prohibited. Traditional group plans offered limited class-based flexibility, typically distinguishing only between broad categories like executive, administrative, or production workers. ICHRA changed the game by introducing 11 IRS-approved classes rooted in Department of Labor definitions rather than old group insurance carve-outs.

The result is a system where employers can design benefits around how their workforce actually operates, not force everyone into the same mold.

Explore how ICHRA works for employers →

Why Employers Vary Benefits by Class

The business case for varying benefits by employee class is straightforward. Different workers have different needs, and a single benefit amount rarely fits everyone.

Budget alignment. Health insurance premiums vary dramatically by geography. An employee in San Francisco faces higher costs than one in rural Texas. Geographic classes let employers match allowances to local market realities.

Recruitment and retention. Offering higher allowances to full-time salaried employees signals investment in core staff, while still providing meaningful coverage to part-time or seasonal workers.

Workforce composition. Companies with a mix of remote, in-office, seasonal, and contract-through-staffing workers need flexibility. A one-size approach either overspends on some groups or underfunds others.

The market is responding. ICHRA adoption grew 34% among large employers from 2024 to 2025, and small business adoption is up 52% among HRA Council founding members. Since 2020, overall ICHRA adoption has increased 1,000%. Perhaps most telling: 92% of employers who offered an HRA last year continued to do so, and 83% of employers offering ICHRA or QSEHRA in 2025 had not previously offered any coverage at all. For a deeper look at what’s driving this shift, see our ICHRA adoption guide.

The 11 IRS-Approved Employee Classes

When varying benefits by employee class under ICHRA, you cannot invent your own categories. The IRS recognizes exactly 11 classes, and every grouping must map to one of them (or a combination).

A critical point: you cannot classify by job title, department, tenure, or pay grade. If a business owner wants to give the management team a different amount than the warehouse crew, “management” and “warehouse” are not valid ICHRA classes. The employer would need to find an approved class that captures the distinction, such as salaried vs. non-salaried.

There is no limit to the number of combination classes you set up. You could create “full-time salaried employees in California” by combining three existing classes. For step-by-step guidance on building these groupings, see our guide to designing eligibility criteria.

This class structure traces directly to DOL labor classifications, which is why the categories look different from the traditional group insurance world of “front of house,” “back of house,” or “executive” carve-outs. If you’re coming from a group plan background, this distinction matters.

Rules for Varying Benefits Within a Class

Once you define an employee class, everyone in that class must receive the same benefit offer. You cannot give Employee A $500/month and Employee B $300/month within the same class just because you want to.

There are exactly two exceptions.

Age (the 3:1 Ratio)

Employers can vary contribution amounts based on age, but the oldest eligible employee cannot receive more than three times the amount given to the youngest. If you offer $600/month to employees aged 50 and older, the youngest eligible employee must receive at least $200/month.

Family Size

You can offer a greater allowance to employees with families than to single employees within the same class. For example, $500/month for employee-only coverage and $900/month for employee-plus-family.

Outside of these two variations, identical terms apply to every employee in the class. Violating this rule puts the plan at risk of federal nondiscrimination violations. Our article on ICHRA nondiscrimination rules covers the compliance details.

Dollar Examples in Practice

A typical setup might look like this:

• Full-time employees: $500/month
• Part-time employees: $200/month
• Full-time employees in California: $600/month (higher due to local premium costs)
• Full-time employees in Texas: $500/month

There are no minimum or maximum contribution requirements set by the IRS, so employers can set amounts that fit their budgets and adjust at the end of each plan year.

Minimum Class Size Requirements

This is the rule that catches employers off guard. Minimum class sizes only apply when at least one employee class is being offered a traditional group health plan while another class receives ICHRA. If every class gets ICHRA (no group plan in the mix), there are no minimum class size restrictions.

When the minimums do apply:

The purpose is to prevent adverse selection, specifically, the scenario where an employer keeps healthy employees on a group plan while shifting higher-risk employees to individual coverage through ICHRA. The minimum class size rules serve as a guardrail against that behavior.

For employers with fewer than 50 full-time equivalent employees offering ICHRA only, class design is often trivial. Many small businesses use a single class for all employees and call it a day. If that describes your situation, see our guide to affordable ICHRA solutions under 50 employees.

Schedule a free consultation to review your class design →

Common Mistakes When Varying Benefits by Employee Class

Practitioners on Reddit’s r/smallbusiness frequently ask about ICHRA implementation, and the confusion around class design comes up repeatedly. Many business owners assume they can simply group workers however they want. They can’t. Here are the mistakes that trip people up most often.

Using unapproved categories. “Engineering team,” “senior managers,” or “employees with 5+ years of tenure” are not valid ICHRA classes. Every group must map to one of the 11 IRS-approved classes or a combination of them.

Offering ICHRA and a group plan to the same class. This is explicitly prohibited. Each employee class must receive either ICHRA or group coverage, not both. Employers sometimes think they can give workers a choice between the two, but this violates federal regulations.

Unequal treatment within a class. Giving different allowances to employees in the same class (outside of the age and family size exceptions) violates nondiscrimination rules and can make the entire plan noncompliant.

Ignoring ACA affordability for ALEs. If you have 50 or more full-time equivalent employees, your ICHRA must meet the ACA affordability standard. For 2026, an employee’s share of the lowest-cost silver plan premium, after the ICHRA contribution, cannot exceed 9.02% of their household income. Our 2026 affordability guide walks through the calculation.

Not verifying MEC coverage before reimbursing. ICHRA reimbursements are only valid when the employee is enrolled in individual health insurance that qualifies as minimum essential coverage. Skipping this verification creates compliance exposure.

ICHRA vs. QSEHRA: Class Flexibility Compared

QSEHRAs do not allow employee classes. Every eligible employee must receive the same benefit offer (with variation only for family size). QSEHRAs are also limited to employers with fewer than 50 full-time employees.

ICHRA, by contrast, offers all 11 classes, unlimited combinations, no employer size restriction, and no cap on contribution amounts. For employers who want the ability to vary benefits by employee class, ICHRA is the only HRA option that supports it. For a broader comparison, see our breakdown of which HRA is right for you.

How to Get Started

Setting up employee classes does not need to be complicated, but getting the class definitions right from the start matters. Mistakes are harder to fix mid-plan-year.

Start by mapping your workforce to the 11 approved classes. Identify which groups genuinely need different allowance levels and confirm that each group aligns with an IRS-recognized class. Set allowance amounts that reflect local premium costs and your budget constraints.

SimplyHRA lets employers create ICHRA plans and employee classes in a few clicks, with payroll-triggered reimbursements, automated expense management, and audit-ready reporting built in. The platform’s in-house broker team, authorized in every state, helps employees choose marketplace plans, which reduces decision friction when workers are new to individual coverage.

Schedule a demo to see class setup in action →

Frequently Asked Questions

Can I create an employee class based on job title or department?

No. ICHRA classes must map to one of the 11 IRS-approved categories. “Marketing department” or “VP-level” are not valid classes. You would need to use an approved proxy, like salaried vs. non-salaried, to achieve a similar grouping.

Do minimum class size rules always apply?

Only when you offer a traditional group health plan to at least one class and ICHRA to another. If every class receives ICHRA, there are no minimum size requirements.

Can I offer different amounts to employees in the same class?

Only based on age (following the 3:1 ratio) or family size. Beyond those two factors, every employee in a class must receive the same offer.

What happens if I mix ICHRA and a group plan for the same class?

This violates federal regulations. Each employee class must receive one or the other, never both. There is no “employee choice” option within a single class.

Is there a limit on how many classes I can create?

No. You can create as many classes as needed by combining the 11 approved types. A class like “part-time hourly employees in New York” is perfectly valid.

Do I have to offer ICHRA to all employees?

No. You can offer ICHRA to some classes and nothing to others, or offer a group plan to one class and ICHRA to a different class. The requirement is consistency within each class, not across the entire company.

How does varying benefits by employee class affect ACA compliance?

For applicable large employers (50+ FTEs), the ICHRA contribution for each full-time employee class must meet ACA affordability thresholds. For 2026, the employee’s remaining premium cost for a lowest-cost silver plan cannot exceed 9.02% of household income. Employers under 50 FTEs are not subject to this requirement.

Can I change class definitions or allowance amounts mid-year?

Generally, no. Class structures and allowance amounts are set at the start of the plan year. Adjustments typically happen at renewal. Planning carefully upfront avoids being locked into a design that doesn’t work.