One of the most common questions that employers want to know is, do I have to offer my employees the same benefits packages? They ask this for a good reason: Specific benefit packages are costly for a company to cover for all of its workers. Can these companies cut costs by providing different employees with different levels of employee benefits packages? Are these methods legal?
Generally, the answer is yes. But, it is a complicated situation. In this blog post, we will explain how an employer can offer their employees different benefits packages, what the law says about this distinction, and how to implement your plans the right way.
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Is It Legal to Offer Different Benefits Packages?
Technically, there are no federal laws that require an employer to provide benefit plans with the same coverage to their employees. In fact, employers can offer different benefits to different employees, as long as they treat “similarly situated individuals” equally. That means that those within a “class” that the business created, receive the same level of benefits. As such, employers have a lot of freedom in structuring their benefit plans.
However, there is one legal requirement around these different benefits packages. They must be based on a bona fide employment-based classification. What does this mean? These benefits are not based on discriminatory criteria and that everyone in the “class” is treated equally.
For example:
- You can provide health benefits to full-time employees. However, you cannot offer these health benefits to only your female employees or employees without a disability.
- It is permissible to allow two weeks of vacation time to an exempt worker, while only providing one week to a non-exempt employee. Vacation benefits are not a protected category.
Similarly Situated Employees
If an employee is in a distinct group of similarly situated individuals, their employer can impose different eligibility provisions, costs, and various restrictions for their benefits. However, these distinctions must reflect the employer’s usual business practice and relate directly to the employee’s status within the company.
Some examples of classifications that reflect distinct groups of similarly situated employees include the following:
- Beneficiaries or participants
- Full-time or part-time employees
- Employees hired on different dates
- Employees who work in different geographic locations
- Non-union members and union members
- Former employees versus current employees
- Membership in a collective bargaining unit
- Differentiating Your Employee Benefits Packages
When employees belong to different classes at their place of employment, or there are differences in their earnings because of how long they have been employed, the equal employment opportunity regulations allow employers to award different benefits to them. However, the key to differentiating these packages is making sure the distinctions are not discriminatory.
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Benefits Based on Position
It is legal for an employer to divide employees into groups based on the individual’s position within the business. For instance, take a workplace that has many different hierarchy levels, such as a law firm. Each of the various groups, including the partners, associates, and paralegals can receive different benefits without breaking any laws- as long as the firm does not abuse this policy by assigning employees with similar roles into different classes.
Benefits Based on Seniority
Some businesses provide different benefits based on certain milestones they reach in the company. For example, you can have a group of benefits that are offered to those employees that have worked for your company for 10-years or 15-years. In addition, you can also provide different benefits packages for those who have been hired at different times. As long as these offers are widespread for the company, it is perfectly fine that each of these groups becomes a unique class with various offered benefits.
How To Implement Employee Benefits Policies
The key to making your benefits packages work is to ensure your benefit plans are nondiscriminatory, meaning that there are no unfavorable impacts on protected groups or unintentional discrimination. Under the Equal Employment Opportunity Commission Compliance Manual of Employee Benefits, Section 3, an employer cannot provide lower-level benefits to an employee based on a prohibited factor (color, race, religion, national origin, age, sex, disability, or genetic information). This conduct is illegal and cannot be done.
It is also essential to review your individual state’s enacted laws as some of them go even further, prohibiting discrimination based on marital status, weight, or sexual orientation. Before you implement any employee benefits packages, consult with an attorney or HR professional that can provide you with the information you need to know about protected classes.
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What the Answer Boils Down To
You do not have to provide equal benefits to all of your employees. In some instances, having unique competitive and comprehensive benefits packages can be a game-changer for your business, helping you retain talented staff, while also bringing in energetic, new employees. However, it’s important to note that not all employers want to offer different benefit packages to different groups because they want to treat all employees all the same. Before you start looking into the different benefits packages, you must exercise due diligence when setting up these groups and benefits, making sure that discrimination is not an issue. No matter what option you choose to take, taking care of your employees is of the utmost importance.
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