The Legal Side of Employee Health Savings Accounts

Health Savings Accounts (HSA) can help offset the costs of your employees’ medical care when they are enrolled in a High Deductible Health Plan (HDHP). Many employers find that the premium savings with HDHPs can be used to encourage their people to choose HDHP’s by contributing some or all of the savings to their groups HSAs. When doing so, it’s best to understand that employer contributions must adhere to strict Internal Revenue Code standards and rules.

Comparability – fairness rules
When you contribute to your employees’ HSA accounts, you must contribute a comparable amount to comparable employees. This means:


  • An equal amount (of dollars) or
  • An equal percentage (of deductible for the HDHP)

To all:

  • Current full-time, or
  • Current part time (30 hours or less), or
  • Former employees

Exceptions – high rollers
The only exception to the comparability rule allows you to make larger contributions to the HSAs of all non-highly compensated employees (NHCE).

Highly compensated employees (HCE) meaning:

  • Employees making more than the Index Compensation Amount in the previous year ($120,000 in 2015, $115,000 in 2014)
  • Employees owning 5% or more of the business in the previous year
    • Includes children whose ownership is “attributed” via stock
  • And if you like, employees with earnings in the top 20% of your company

Take note - even if your employee’s salary is $40k, if they own 7% of the business, they’re considered highly compensated – regardless of profit or revenue of the company.

Ways to Falter – getting specific
They key word to remember in the IRS definitions and rules is all. Companies unwittingly fail the comparability test by attempting to get more specific. HSAs offered under cafeteria plans, for example, are subject to the non-discrimination test – a test to check that your benefits plan isn’t favoring the highly compensated.

Under the comparability rule, you could fail the test by:

  • Attempting to contribute to certain employees only ($1000 to full time )
  • Attempting to contribute based on a sliding-scale of hours worked (employees working 20 hours or less gets 25% deductible contribution, 39 hours or less = 50%, 40+ hours = 75%)
  • Setting their own standard of contribution eligibility (contributions to employees earning salaries in the lower 50% only)

Penalty – not chump change
Discouraging employers from breaking and bending these rules is a 35% excise tax on the total amount contributed to employee HSAs.

In the case of HSAs, a strong broker or benefits consultant should be able to help you provide a package that suits your recruitment and financial needs and your lawyer or legal counsel can ensure your package complies with rules such as these.

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