Understanding ICHRA Classes and Allowance Levels

Modern workforces are diverse, spanning full-time, part-time, seasonal, remote, and even international roles. But most group health plans still treat every employee the same.

The Individual Coverage Health Reimbursement Arrangement (ICHRA) offers a more flexible approach. Through employee classes, employers can structure health benefits based on legitimate job-based criteria like role, region, or employment type.

Here’s how ICHRA classes work and how they can help you design benefits that better reflect your team’s real-world needs.

What are ICHRA classes?

ICHRA lets employers divide their workforce into distinct groups and offer different benefits to each one. These groups (called employee classes) are defined by objective job-related criteria.

The IRS outlines 11 permitted ICHRA classes:

• Full-time: Typically 30+ hours per week
• Part-time: Fewer than 30 hours per week
• Seasonal: Hired for short-term or temporary assignments
• Salaried: Employees on a fixed salary
• Hourly: Paid based on hours worked
• Collective bargaining: Covered under a union contract
• Foreign-based workers: Working abroad with no U.S.-taxable income
• Geographic location: Based on insurance rating areas, states, or regions
• Temporary: Short-term placements from staffing or temp agencies
• Waiting period: Employees who have not satisfied a waiting period
• Custom combinations: Allowed combinations of the above classes

Each class receives one benefit option. You cannot offer employees in the same class a choice between ICHRA and a group plan—only one or the other. However, the ability to mix and match across multiple classes gives you a powerful way to support a diverse workforce.

ICHRA class size requirements

If you offer both ICHRA and a traditional group plan, minimum class sizes apply to certain classes (like full-time vs. part-time or salaried vs. hourly). This helps prevent adverse selection.

Here’s how minimum class size rules break down:

• Employers with fewer than 100 FTEs: 10 employees
• Employers with 100-200 FTEs: 10% of total headcount (rounded down)
• More than 200 FTEs: 20 employees

But if ICHRA is your only health benefit options, no class size minimums apply.

How to set allowance models by class

Once your classes are defined, you’ll set allowance amounts, or monthly contributions employees can use to purchase individual health insurance and qualified medical expenses.

Allowance amounts can vary across classes, and can also be adjusted within a class by:

• Age: Older employees may receive higher contributions, typically tied to age brackets or individual age-based scales.
• Family size: Many employers use 4-tier (employee-only, employee + spouse, employee + children, family) or 8-tier structures.
• Location: Health plan costs vary by geography, so allowances may be adjusted based on insurance rating areas.
• Employment type: Full-time employees may receive more than part-time or seasonal staff.

As long as allowances are set consistently within each class, this flexibility is allowed—and is often essential for equity and affordability.

Can employees move between classes?

Employees can move between classes, but only under qualifying, job-based conditions. If an employee moves to a new location, switches from part-time to full-time, or otherwise changes their job classification, they may be reassigned to a different class.

If that happens, your ICHRA administrator should:

• Adjust their allowance automatically
• Trigger a Special Enrollment Period (SEP) for the employee to update their insurance
• Maintain proper documentation for compliance

In conclusion

ICHRA classes give employers a powerful tool to build flexible, fair, and compliant benefits programs. Instead of forcing every employee into the same plan, you can design contributions that reflect job role, location, hours, and real-world cost differences.

Zorro was built to help employers and brokers use ICHRA strategically from class setup to allowance modeling and employee support.

Want to explore class design strategies and tailored allowance models for your team? Book a demo and see how Zorro helps make ICHRA work for today’s workforce.