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Employee Classification Groups: Nondiscrimination rules

Generally, nondiscrimination rules require employers to offer an employer-sponsored group health plan on the same basis to all employees in a particular classification group. This applies to all facets of the group health plan coverage: Section 125 premiums, cafeteria plan options (HSA, FSA, etc.), and HRAs.

Employee Classification Groups: Nondiscrimination rules

Nondiscrimination Basis

Differences in coverage cannot be determined by any health-related criteria, nor may it be decided by race, age, or gender. Only nondiscriminatory employee classification groups may be applied.

Employee Classification Groups

Here are the most common employee classification groups defined by HIPAA, ERISA, and DOL nondiscrimination rulings:

  • Full-time employees,
  • Part-time employees,
  • Seasonal employees,
  • Employees under a collective bargaining agreement,
  • Employees not yet eligible per an employer-defined coverage waiting period,
  • Employees under 25 years old at the start of the current plan year,
  • Foreign employees working abroad (non-resident aliens with no U.S. income),
  • Geographic location/rating area (for health insurance premiums in the individual and small group markets (ref. 45 CFR 147.102(b)),
  • A group defined as a combination of two or more classes listed above.

More detailed information on employee classification groups is available from these government resources:

Legal Guidance for Group Health Plan Requirements

Code of Federal Regulations

 US Code on Cafeteria (§ 125) and HRA (§ 105) plans:

26 U.S. Code § 105 – Amounts received under accident and health plans

26 U.S. Code § 125 – Cafeteria plans

Read more about nondiscrimination testing in these Core Documents blog posts:

HSA nondiscrimination testing vs. comparability rule depends on employer contribution method

How to identify key employees and HCEs to conduct non-discrimination testing


This article is intended only as an informational piece and is not intended as tax or legal advice. Core Documents, Inc., and its partners do not provide tax, legal, or accounting advice. You should consult your own tax, legal and accounting advisors and/or the IRS, for the best information applicable to your unique situation.

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