“Discrimination” is a word that no human resources professional ever wants to hear. Unfortunately, many HR leaders are unaware that discrimination can easily be lurking where we expect it least: in our employee benefits programs.
Moving forward, we’ll explore:
- The difference between unfairness and discrimination
- How employee benefits can unknowingly be discriminatory
- What HR needs to do identify and eliminate discriminatory benefits practices
Discrimination vs. Unfairness
Discrimination is the unjust or prejudicial treatment of different categories of people, particularly on grounds of race, age, or gender.
Unfairness is a lack of equity; that is to say, a situation in which not everybody is treated the same way.
Those concepts are closely tied – and they can certainly occur at the same time – but they’re not exactly synonyms.
Fairness is an ideal, a target we should be able to hit the vast majority of the time. As an HR department, nobody is ever going to love every policy or initiative, but if your policies and the way you treat people feels consistent, you’ll be fine. When fairness issues become systemic and begin to affect work or culture, then you have a problem.
On the other hand, it’s never okay to be discriminatory from a moral or legal/compliance standpoint.
How does this apply to employee benefits?
By nature, insurance isn’t always “fair.” For example, if a 30-year-old employee and a 68-year-old employee are on the same health plan, making the same employee contribution, the 68-year-old will see much more value due to their increased likelihood of medical need.
If you’re the 30-year-old in that scenario, that doesn’t feel very fair, but it’s not discriminatory. That’s because, if that 30-year-old had the same medical needs as the 68-year-old, the plan would be just as valuable to them. There’s no unfair barrier in place blocking access due to age.
The EEOC dictates that programs are not discriminatory in that exact scenario as long as they provide either equal cost or equal benefit.
HR directors and benefits managers hear a lot from employees about why their benefits offerings are imperfect, but it’s crucial to sort out a fairness issue from actual discrimination.
How can employee benefits be discriminatory?
As their name implies, employee benefits are valuable perks that positively impact people’s lives. When you start offering different employees different levels of benefits, you encounter a real fairness issue, but depending on the way you’re classifying employees when you make those offers, you might be discriminating and not even knowing it.
The law states that in order to offer two employees different benefits packages, you need to demonstrate those two individuals are on different levels in terms of “bona fide employment-based classifications.”
Those bona fide classifications include:
- Full Time vs. Part Time status
- It’s okay to offer full-time employees benefits that part-timers don’t receive
- Geographic location
- It’s okay (even necessary) to offer eligible
employees different benefits packages based on where they live
- This generally applies to businesses that operate across multiple states
- It’s okay (even necessary) to offer eligible employees different benefits packages based on where they live
- Different dates of hire and lengths of service
- It’s okay if senior employees have been “grandfathered in” with an old plan
So, the bottom line is, if you have two full-time employees working in the same office who got hired on the same day, they should have equitable access to the same employee benefits programs.
What about managers and executives?
The most common way businesses inadvertently commit benefit discrimination is by the way they structure benefit offerings to so-called Highly Compensated Employees (HCEs). An HCE is someone who:
- Makes more than $130,000 or
- Owns more than 5% of the business
If your business is self-insured, the ACA prevents you from offering preferential benefits packages to HCEs. If your business is fully insured, you can offer a higher tier of benefits (or lower premium costs) to HCEs if your business does not offer a cafeteria plan. In the event you are insured and have a cafeteria program in place, it’s unlikely you will be able to offer different plans to your executives, but always double check with your broker.
Regulations concerning benefits discrimination
If you would like to explore the compliance frameworks to fully grapple with the problem, here are some places you can find discrimination regulations specifically tied to employee benefits policies.
- The Internal Revenue Code, Part 1, Sections 104-106, 125, 129, 223
- The Equal Rights & Insurance Security Act (ERISA)
- The Affordable Care Act (ACA)
- Your state and municipal regulations
What does HR need to do?
There are three compelling core reasons to review your employee benefits programs through the lens of checking for discrimination:
- Reducing discrimination is simple the right thing to do
- An employee dispute over a discriminatory program could become a long legal battle
- If regulators discover or catch wind of discriminatory practices, your business will be fined
As an HR leader, you need to be proactive and be sure you:
- Lead an internal audit of your employee benefits offerings to ensure packages are offered in a way that is nondiscriminatory
- Contact your benefits broker to ensure they are aware of all relevant regulations and can describe to you how and why your program is compliant
- Inform your legal and compliance teams as quickly as possible if you detect any issues, shortcomings, or possible areas of discrimination
- Take ownership over correcting all issues as quickly as possible
When you work to eradicate hidden discrimination from your policies and offerings, you’re strengthening your organization for the long-term and doing your part to create a better work experience for all professionals.
Employee benefits discrimination unfortunately occurs often because the situations in which businesses can or can’t offer different packages can confusing at times.
- Insurance isn’t necessarily “fair” (because there’s no guarantee people will get the same value out of it), but it should never be discriminatory
- All differences in benefits offerings should be based on bona fide employment-based classifications, like part time vs. full time, location, or date of hire
- If you are self-insured or have a cafeteria plan, you cannot offer preferential benefit packages to highly compensated employees
- All HR departments should lead an audit of their offerings in collaboration with your benefits broker and legal team