Human Resource Blog

Is it legal to require employees to pay for health insurance coverage

I have asked this question and have had various answers. Is it legal to require employees to participate in and pay for a small portion of their health insurance? In this particular situation, the employee cost for single coverage is $55.00 out of $355.00 per month and they do make it a condition of employment that all employees participate.

No, under current statutes, you can automatically enroll employees in your health insurance plan, but you must give them the choice to opt out of it. Otherwise, this is an illegal payroll deduction in any state, and under federal law.

When an employee voluntarily signs up for group health insurance, it is legal to pass on some or all of the cost to the employee. In fact, by contributing $300 of the $355 premium, your company is being very generous. You could contribute less of the premium, or even require the employee to pay the entire $355 premium, and it would be lawful. However, when an employee pays any porition of the premium, you must give them the choice to opto out of group health insurance.

The federal FLSA permits an employer to make deductions from payroll only when they are required by law or for the employees benefit. If you hire an employee who already has health care coverage through a spouse or Medicare, and make this deduction from payroll, that is not a benefit to the employee. Therefore, you are in violation of federal law. You are basically charging the employee $55 per month to work for you by paying the employee $55 per month less than they earn.

In addition, the majority of states require that the employee sign an authorization permitting the payroll deduction for insurance. If an employee does not voluntarily sign the authorization, you are in violation of state minimum wage and wage payment laws. An employer cannot be coerced into signing the document. If you do so, you are illegally withholding a portion of the employees pay.

You can certainly explain to employees how important it is that you have 100% enrollment in your company health insurance plan and strongly encourage employees to sign up. However, the employee must still have a choice, if he or she is paying a portion of the premium.

Theoretically, if you are in an “employment-at-will” state, you can choose to fire any employee who does not sign up for your health insurance plan. However, this will probably result in you firing 98% of employees who qualify for Medicare, which would be illegal discrimination based on age.

It sounds like your company once paid the entire health insurance premium for employees. Now you have decided to pay only part of the premium. That is lawful, but because you are requiring the employees to pay the balance, you no longer have control over who is and is not signed up for insurance. Very simply, your employees have the right to determine how they will spend their money.

If you are interested in having 100% of your workforce covered by your health insurance plan, it should not be too hard to find applicants who need health insurance. The other option, of course, would be for the employer to pay the entire premium on every employee.