ICHRA: What are employee classes and how do they work

ICHRA employee classes are IRS-defined groups of employees that determine who is eligible for an ICHRA and what reimbursement amount they receive, based on objective job-based criteria like hours worked, job type, or location.

What are ICHRA employee classes?

ICHRA employee classes are predefined categories of employees that employers use to structure eligibility and contribution levels in an ICHRA.

Each employee class:

Must be based on objective, job-related criteria (not health status or medical condition)
Must be applied consistently within the class
Can be offered different reimbursement amounts compared to other classes

Employers can offer an ICHRA to one or more classes and may offer a traditional group health plan to other classes.

What employee classes are allowed under ICHRA rules?

Employers can use the following IRS-approved employee classes:

Full-time employees
Part-time employees
Seasonal employees
Salaried employees
Non-salaried (hourly) employees
Employees covered by a collective bargaining agreement
Employees in a waiting period
Employees in the same geographic rating area
Temporary employees of staffing firms
Foreign employees working outside the U.S.
Any combination of the above classes

All employees within a class must be treated the same for eligibility purposes.

Can employers offer different ICHRA amounts by class?

Yes.

Employers can set different reimbursement amounts for each employee class.

For example:

Full-time employees may receive a higher monthly allowance
Part-time employees may receive a lower allowance
Remote employees in a specific state may receive a different amount than headquarters employees

However:

All employees within the same class must receive the same base rules
Differences are allowed only between classes, not within a class

Can ICHRA contributions vary within a class?

Yes, but only in limited ways.

Within a single employee class, employers may vary contributions based on:

Employee age (subject to a federal 3:1 ratio rule)
Family size (e.g., employee-only vs. employee + dependents)

These variations must still follow consistent, nondiscriminatory rules.

Can an employer offer both group health insurance and an ICHRA?

Yes, but not to the same employee class.

Employers can:

Offer a traditional group health plan to one class
Offer an ICHRA to a different class

However:

The same employee class cannot be offered both options
Class definitions must be based on legitimate job-related criteria

Are there minimum size requirements for employee classes?

Yes, in certain cases.

Minimum class size rules apply only when an employer offers both:

A traditional group health plan to one class, and
An ICHRA to another class

Minimum sizes are generally:

Fewer than 100 employees → at least 10 employees per class
100–200 employees → at least 10% of total workforce per class
More than 200 employees → at least 20 employees per class

Some classes (such as seasonal or union employees) may be exempt from these rules.

What is the purpose of employee classes?

Employee classes give employers flexibility to:

Control benefit costs across different segments of the workforce
Offer different benefits to different job types or locations
Transition away from traditional group plans for certain employee groups
Support remote, seasonal, or distributed teams

Classes allow ICHRA to scale across complex workforces while remaining ACA-compliant.

What rules must employers follow when using employee classes?

Employers must ensure:

Classes are based on objective, job-related criteria
Employees within the same class are treated equally
Health status or medical conditions are never used for classification
Class structure is applied consistently across the plan year
Employees are only assigned to one class

Can employers change employee class design later?