It is okay to just set up a QSEHRA for full-time employees only under this new law. Part-time and seasonal employees can be excluded. But, how does the IRS define part-time and seasonal?
Part-Time & Seasonal Employee Definition
For purposes of determining whether an employee may be excluded from being an eligible employee under the terms of a QSEHRA, “part-time employees” and “seasonal employees” have the meanings set forth in § 1.105-11(c)(2)(iii)(C) of the Income Tax Regulations:
IRS definition (§ 1.105-11(c)(2)(iii)(C)): "Part-time employees whose customary weekly employment is less than 35 hours, if other employees in similar work with the same employer have substantially more hours; and seasonal employees whose customary annual employment is less than 9 months, if other employees in similar work with the same employer have substantially more months. Notwithstanding the preceding sentence, any employee whose customary weekly employment is less than 25 hours or any employee whose customary annual employment is less than 7 months may be considered as a part-time or seasonal employee."
What this means in plain terms
Basically, you can't completely arbitrarily set a number of hours worked per week to differentiate between your full-time and part-time employees. But the guidelines for doing so are flexible.
Additionally, QSEHRA eligibility rules must be applied uniformly across all employees and cannot be customized for individual employees.
Bottom line: check with your CPA! If you want to set up your QSEHRA for full-time employees only and you aren't sure exactly who to exclude or who qualifies as "full-time," ask your CPA to help you classify your employees according to the definition above.
Adjusting QSEHRA Eligibility for Part-Time Employees
Updating Employee Status:
If an employee transitions to part-time status, update their classification in your records and the Take Command admin portal. This ensures compliance with your Summary Plan Description (SPD) and eligibility rules.
If your portal does not allow direct classification changes, temporarily remove the employee from the QSEHRA roster for at least one full month.
Manual Updates Required:
Changes to QSEHRA eligibility do not update automatically from payroll systems like Gusto. You must manually update the employee’s status in the Take Command platform.
Notification to Employees:
Notify employees in advance of any changes to their eligibility status. This helps avoid confusion about the loss of employer contributions.
Handling Overpayments and Eligibility Errors
If an employee receives QSEHRA reimbursements for months they were not eligible (e.g., due to unresolved coverage issues), you should:
Adjust future payments to account for the overpayment. This can involve backing out the excess from future reimbursements or applying it as a credit toward upcoming payments.
Use Take Command’s platform to track accumulated balances and manage unclaimed or overpaid amounts.
Including Part-Time Employees in QSEHRA
If you choose to include part-time employees in QSEHRA, follow these steps:
Provide written notice to eligible employees at least 90 days before the start of the plan year or upon their eligibility.
Collect proof of Minimum Essential Coverage (MEC) before reimbursing any expenses.
Ensure all medical expenses are substantiated with proper documentation.
Special Considerations for Complex Employment Histories
For employees with unique employment histories (e.g., transitioning to part-time after a period of inactivity), treat them as continuously employed for QSEHRA purposes if termination was not processed and they maintained qualifying coverage. Update their status to part-time/ineligible as of the part-time start date and stop reimbursing expenses incurred after that date.
Key takeaway
You can exclude part-time and seasonal employees from your QSEHRA, but you cannot set the hour threshold arbitrarily. The IRS uses a comparative standard relative to your other employees in similar roles. If you are unsure how to classify your workforce, consult your CPA before finalizing your plan design.
Additionally, ensure that eligibility rules are applied uniformly and that status changes are updated manually in your plan administration tools to maintain compliance.