What are the 11 ICHRA employee classes, and which three cause problems?
An ICHRA permits 11 employee classes under 26 CFR §54.9802-4. Three of them, geographic, seasonal, and combination, generate most of the compliance questions employers bring to administrators.
In short
- Federal regulations at 26 CFR §54.9802-4 permit exactly 11 employee classes for ICHRA design, including full-time, part-time, salaried, seasonal, and geographic location classes.
- The minimum class size rule requires at least 10 employees in a class for employers under 100 workers, rising to 20 for employers above 200, but only when a class splits ICHRA from a traditional group plan.
- The geographic location class, the seasonal employee class, and the combination class generate the most employer compliance questions, per administrator and vendor guidance reviewed in 2026.
- 1099 contractors cannot form an ICHRA class because they are not employees under the 2019 final rule (Federal Register 2019-12571).
What are the 11 ICHRA employee classes under federal law?
Federal regulations at 26 CFR §54.9802-4(d) permit exactly 11 employee classes for designing an ICHRA (Individual Coverage Health Reimbursement Arrangement): a federal benefit framework under 26 CFR §54.9802-4 that lets employers reimburse employees tax-free for individual market premiums. An employer can vary the allowance amount by class, but the categories are fixed, custom categories are not permitted under the 2019 final rule (Federal Register 2019-12571).
- Full-time employees
- Part-time employees
- Employees in the same geographic location (rating area, state, or combination of states)
- Seasonal employees
- Employees in a waiting period
- Non-resident aliens with no U.S.-based income
- Salaried employees
- Non-salaried (hourly) employees
- Temporary employees of staffing firms
- Employees covered by a collective bargaining agreement
- A combination of two or more of the ten classes above
| Class | Definition | Common pitfall |
|---|---|---|
| Full-time | Meets employer's full-time threshold, often 30+ hrs/week | Definition must match a reasonable standard, not shift week to week |
| Part-time | Below the full-time threshold set by the employer | Threshold must be consistent and documented in the plan |
| Geographic location | Rating area, state, or group of states where employee works | Confused with employer HQ location instead of work location |
| Seasonal | Tied to the ACA common-law seasonal worker standard | Confused with part-time or with predictable annual stints over six months |
| Waiting period | New hires before ICHRA eligibility begins | Must align with the 90-day maximum waiting period rule |
| Non-resident alien | No U.S.-source income, narrow population | Rarely relevant outside specific multinational payrolls |
| Salaried | Paid a fixed salary, not hourly | Overlaps with full-time/part-time, creates stacking confusion |
| Non-salaried (hourly) | Paid by the hour | Same overlap risk as salaried class |
| Staffing firm temp | Temporary workers placed by a staffing agency | Confused with 1099 contractors, who cannot be a class at all |
| Collective bargaining | Employees under a union contract | Requires coordination with bargaining unit terms |
| Combination | Two or more of the above stacked together | Highest misclassification risk, covered below |
How does the minimum class size rule affect class design?
The minimum class size rule requires at least 10 employees in a class when an employer has fewer than 100 total employees, rising to 10% of the workforce for employers with 100 to 200 employees, and 20 employees for employers above 200, according to the 2019 final rule (Federal Register 2019-12571). The rule applies only when an employer offers a traditional group plan to one class and an ICHRA to another, and only for classes defined by full-time/part-time status, salaried/non-salaried status, geographic location, or a combination that includes one of those factors.
An employer offering ICHRA to every class, with no traditional group plan running alongside it, is not bound by the minimum class size rule at all. The rule exists specifically to stop employers from carving out one unhealthy employee into a class of one and routing that person to the individual market while keeping everyone else on the richer group plan.
Why does the geographic location class confuse multi-state employers?
The geographic location class lets an employer set a different ICHRA allowance for employees working in a different rating area, state, or group of states, defined in 26 CFR §54.9802-4(d)(3), and confusion arises because the boundary follows the employee's primary work location, not the employer's headquarters or payroll state. A company headquartered in Ohio with employees logging in from Texas, Colorado, and Florida has at least three potential geographic classes, not one national class, even though every paycheck comes from the same office.
Remote and distributed workforces make this class the single most common source of design questions, because a rating area inside one state can differ from the state line itself, and CMS publishes separate rating area maps that administrators reference when drawing class boundaries.
Why does the seasonal employee class trigger compliance questions?
The seasonal employee class ties to the Affordable Care Act's common-law seasonal worker standard, generally work that recurs at approximately the same time each year and lasts six months or less, and employers frequently misapply it to workers whose stints run longer or whose schedules shift year to year. A landscaping company bringing back the same crew for eight months every year may find that crew does not meet the regulatory definition of seasonal, which changes which of the 11 classes actually applies.
Why does the combination class carry the highest misclassification risk?
The combination class stacks two or more of the other ten categories, for example "full-time employees working in Texas," and carries the highest risk because each added layer narrows the group further, sometimes down toward a single person. Regulators built an anti-abuse provision into the 2019 final rule specifically to stop employers from engineering a combination that functions as a disguised health-status classification rather than a legitimate business category.
A combination class also inherits the minimum class size rule from whichever underlying factors it includes, so a combination built from full-time status and geographic location must still clear the 10, 10%, or 20 employee threshold described above, counted within that narrower combined group, not within the broader full-time population.
A class that looks reasonable on a spreadsheet can still fail the regulation's intent the day it maps back to a single employee's health condition.
Can an ICHRA class include 1099 contractors or staffing-firm temps?
A 1099 independent contractor cannot be placed in any ICHRA class, under any of the 11 categories, because an ICHRA is a group health plan available only to common-law employees under the 2019 final rule (Federal Register 2019-12571). The regulation does include a separate class for "temporary employees of staffing firms," a distinct population of W-2 workers placed by an agency, which employers routinely confuse with 1099 status when designing a workforce that mixes both arrangements.
What happens if an employer misclassifies an employee's class?
A misclassified employee can void the tax-favored treatment of reimbursements for that class and expose the employer to excise tax risk under the Internal Revenue Code's group health plan compliance provisions, historically assessed at $100 per day per affected individual for certain group health plan failures. IRS Publication 15-B describes the general tax treatment of employer-provided health benefits, including HRAs, and most administrators recommend documenting the class definition in the plan document before the plan year begins rather than after an audit raises the question.
Separately, H.R. 6703, the Lower Health Care Premiums for All Americans Act, passed the House 216-211 on December 17, 2025 and would codify ICHRA into statute as the CHOICE Arrangement (Custom Health Option and Individual Care Expense Arrangement): the statutory name proposed for ICHRA under H.R. 6703, pending in the Senate. As passed by the House, the bill changes the employee notice window and opens Section 125 pre-tax treatment for on-exchange premiums, but it does not alter the 11 employee classes or the minimum class size rule described above.
Talk to a licensed agent about class design
Enrolling employees in individual market plans is handled by licensed agents in the states where they hold a license. A form below routes a class design question to InsureICHRA's research desk.
What should an employer check this week before setting classes?
Employers in this situation typically explore a short list of checks before finalizing a plan document, rather than a single step, because class design interacts with payroll categories already in use.
- Pulling the current payroll system's full-time, part-time, salaried, and hourly definitions to confirm they match the terms used in the plan document
- Mapping remote and multi-state employees to their actual rating area, not their manager's office location
- Running the minimum class size count separately for any class used to split ICHRA from a group plan still in place
- Confirming no combination class narrows down to one or two identifiable individuals
- Reviewing the plan document with a licensed agent or benefits counsel before the notice period begins
Readers comparing class design across vendors can review the PeopleKeep ICHRA guide or the Take Command ICHRA guide for vendor-specific class-builder tools, alongside InsureICHRA's coverage of IRS Notice 2026-05 and the affordability calculator.