• Justin Hein

Tiered Benefit Packages are Legal

California Employers Can Offer Tiered Benefit Packages to Different Types of Employees--So Long as they Do Not Discriminate Illegally

Employers cannot illegally discriminate against employees by placing them into particular tiers of less or more benefits due to their membership in a protected class, status, or conduct. Benefits include vacation, paid time off, retirement, profit-sharing, bonuses, vehicle allotment, cell phone allotment, and/or anything else that is not mandated for employees under the law.

For purposes of health care benefits, protected class is expanded under HIPAA. Specifically, it makes it illegal to assess health insurance premiums based on health factors. As such, it is not permissible to charge some employees more than any other similarly situated individuals based on medical conditions, claims experience, receipt of health care services, genetic information or disability.

That being said, Employers may have different tiers among employees on “bona fide employment-based classifications” consistent with the employer’s usual business practice. For example, part-time and full-time employees, employees working in different geographic locations, and employees with different dates of hire or lengths of service can be treated as different groups of similarly-situated individuals. So, for example, it is perfectly permissible to offer more benefits to exempt employees and less to nonexempt employees because the basis of the benefit is not any protected category or other applicable law.

The key for employers is to make sure that benefits plan decisions are nondiscriminatory. One has to keep in mind the adverse impact on protected groups and any unintentional discrimination that may result from those decisions—so not only looking at how to differentiate on the front end, but also reviewing what it looks like as a result (e.g. only women are on the lower tier, etc.)

The EEOC has a pretty good guide that addresses discrimination in life and health insurance benefits, long-term and short-term disability benefits, severance benefits, pension or other retirement benefits, and early retirement incentives, while looking through the prism of Title VII, ADA, and ADEA.

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