Learning the ins and outs of health savings accounts (HSAs) is one thing. Figuring out exactly how to offer and set up an HSA program for your employees is another. But don’t worry—we’ve got you covered. Find clear answers to your questions about offering and setting up employer-sponsored HSAs here. We’ll start with the basics, like are employers required to offer HSAs for employees, and how you as an employer can set up an HSA for your employees. We’ll also cover another frequently asked question from the employer side—can highly compensated employees participate in an HSA? Let’s dive in.

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Are employers required to offer HSAs?

First thing’s first—are employers required to offer HSAs—meaning do you as an employer have to offer an HSA to your employees? The short and simple answer is no. But let’s explore the idea of requirements a bit more, as well as the reasons why you should consider offering an employer-sponsored HSA—required or not.

We’ll start by briefly covering employer healthcare requirements—specifically those under the Affordable Care Act (ACA). As an employer, you’re either subject to the ACA employer mandate for large employers, or you’re not. That mandate requires what the IRS deems as a large employer to provide a specified percentage of their full time equivalent employees and their families with minimum essential healthcare insurance. A “large employer” is defined by the IRS as any organization that employs, on average, a combination of 50 or more full time and full time equivalent (FTE) employees during six months or more of the previous year. Any large employer who fails to comply with the IRS mandate must pay a no-coverage penalty—$2,500 times the total number of full time employees minus the first 30 of those employees. This no-coverage penalty is considered an excise tax and isn’t tax deductible. Again, remember, this is for large employers with more than 50 full time employees.

If you’re a small employer—defined as an employer with fewer than 50 full time employees—you’re not subject to any mandates. This means that small employers are under no obligation of any kind to provide healthcare insurance to their employees.

But for large and small employers—mandate or no mandate—you need to look beyond requirements, and rather focus on the many benefits of offering an HSA-compatible health plan with an HSA. Because just because you don’t have to doesn’t mean you shouldn’t.

Offering an employer-sponsored HSA to your employees is a win-win for both you and your employees. For you as the employer, you’ll benefit from lower payroll taxes (if you set up your HSA to allow pretax contributions), positive upticks in employee satisfaction, leverage points for both employee recruitment and retention and lower health benefits costs. In addition, HSA programs like Bend HSA are also easy for employers to set up and maintain—and associated fees are very affordable. Your employees, in turn, will also benefit from lower taxable income, more flexibility and control of their healthcare spending and enhanced long-term savings options.

It’s clear to see that even if you don’t have to, you likely want to set up an employer-sponsored HSA.

If you read our section on HSAs for Small Business Owners and Self-Employed Individuals, you’ll recall that HSAs aren’t actually a type of health insurance, rather a complementary, tax-advantaged tool that becomes an available option when you offer an HSA-compatible high-deductible health plan (HDHP). 

How do I set up an HSA for my employees?

If you’ve come this far, you likely have a solid understanding of what an HSA is and why it’s advantageous for you to offer an employer-sponsored HSA to your employees.

But just in case, let’s quickly recap one of the main advantages of offering an employer-sponsored HSA through a platform like Bend HSA—a combination of two mutually exclusive benefits—cost savings and time savings.

On the employer side, setting up and implementing Bend HSA is simple, completely online (paperless!) and takes on average only 30 minutes from start to finish.

On the employee side, enrollment is equally as simple and is achieved completely online, eliminating any need for you as the employer, or for your employees, to chase paper forms. With Bend HSA, employee enrollment isn’t just electronic—it’s automated. All you need to do is upload your employee information into the Bend HSA system. From there, Bend automatically sends your employees emails to enroll.

That’s it. In a few quick, simple steps, your HSA program can be set up and launch out to your employees. And as the employer, you immediately begin to benefit from efficiencies that save you time and money, and lead the path to the next advantages of setting up a paperless HSA program through Bend HSA—administrative relief, plus ease of use and overall program sustainability.

With Bend HSA’s unique automation process, your employees’ enrollments are continually monitored and customized messaging is pushed out as needed to nudge your employees along through the enrollment process, utilizing positive reinforcement and easy-to-follow instructions. Along with saving you time and money, you get a huge assist with an otherwise burdensome administration process. That means no HR staff time manually uploading information, chasing paper forms, printing more paper forms and other materials, dealing with physical enrollment packets and more. And by reducing the chance of errors and omissions commonly found on paper forms, Bend’s paperless enrollment process frees up your staff’s time while providing them with an easy-to-use, sustainable platform for ongoing HSA plan administration.

Sounds pretty good, right? And also pretty easy.

Now you just need the framework for how you actually make it happen—i.e., how you structure your actual HSA program. Though the thought of the “technical” side of setting up an HSA may seem daunting at first, it’s also actually a fairly simple and straightforward process that takes less time than you think, and starts paying off immediately.

So for a moment, let’s back up. Before you can actually set up an HSA for your employees, you need to understand how to be eligible to do so. We’ve covered that previously under the section on How do I set up an HSA for my small business? If you haven’t already, be sure to take some time to read and digest that section. In the meantime, let’s quickly revisit how setting up your HSA program relates to your employees.

The first step to setting up an HSA for your business—and your employees—is ensuring you’re eligible to open and provide an HSA by offering an HSA-eligible high-deductible health plan (HDHP) as part of your healthcare benefit offerings. As you may or may not recall, it’s important to note that not all HDHPs are HSA-eligible, so be sure you double-check your specific plan offerings before moving forward.

Once you’ve worked your way through that process and have your HSA-eligible HDHP ready to go, the next step is to choose who will administer your HSA program and employee accounts. Remember—you can open your HSA a variety of ways—through your bank, another financial institution or conveniently online from a leading-edge, FDIC-insured HSA provider like Bend HSA. This is a critical decision, because no two HSA administrators are created equal. Fees, investment options, ease of maintenance on both the employer and the employee side and many other variables can impact both the short and long-term HSA financial health for your business and your employees. So do your homework, and make the right choice.

From this point, as you collaborate with your HSA administrator to work through all of the details on administration and HSA enrollment, you have the choice of how you want contributions to be handled—essentially if you’ll want to use a Section 125 cafeteria plan or not.  

If you want to allow your employees to make pretax contributions to their HSAs, as well as have the option as the employer to make pretax contributions, you need to set up and maintain a Section 125 cafeteria plan that offers HSA deferrals.

This cafeteria plan is an employee benefits plan administered under Section 125 of the federal tax code (hence why the plan is sometimes also referred to as a 125 plan). This type of plan allows your employees to pay certain expenses with pretax income, and to choose the benefits they want (just like in an actual cafeteria!). If you choose to set up this type of plan, funding an HSA can be an option under your cafeteria plan.

Assuming you move forward with using a Section 125 plan, the final step on the technical side of your HSA setup for employees is providing the proper documentation. If you choose Bend HSA, the tax documents will be created for you. You’ll also need to provide all of your employees—including all new hires—with documents that outline the details of your health plan. These documents typically include three critical pieces:

Plan document: Details which benefits are included in the plan, annual limits, rules of participation, definitions and eligibility and contribution information

Summary plan description (SPD): Details in-depth the plan itself—everything from plan sponsorship and administration, to the claim filing process

Compliance confirmations: As part of offering a Section 125 plan, you must provide ongoing documentation that you’re following the comparability rule created to ensure you treat all of your employees equally and not show bias toward higher earners

From there, you’ve completed the setup phase, and with the continued support of an HSA administrator like Bend HSA, you’re ready to launch your employer-sponsored HSA to your employees.

Can highly compensated employees participate in an HSA?

Yes—highly compensated employees can participate in your employer-sponsored HSA. But there are some specific HSA nondiscrimination rules and other details regarding highly compensated employees that you need to be aware of when it comes to how they participate in your HSA.

But before we get into those HSA nondiscrimination rules and details, let’s define exactly what a “highly compensated employee” means.

A highly compensated employee is defined as any employee who was a more-than-5% owner at any time during the year or preceding year or received compensation in excess of $120,000 for the preceding year, and, if your company so elected, was in the top 20% of employees when ranked by pay.

Now that we’ve defined what highly compensated employees are, here come the HSA nondiscrimination rules and details that come along with them.

It’s important to note that specific HSA nondiscrimination rules are set by the IRS to ensure equal treatment across all of your employees in how you administer their HSAs. That means that your employer HSA contributions to highly compensated employees may not be larger than your employer HSA contributions to non-highly compensated employees. These rules also apply across all highly compensated employees, meaning you as the employer must make comparable HSA contributions to each highly compensated comparable employee.

Along with the HSA nondiscrimination rules, you as the employer have the option to treat highly compensated employees as a separate class from non-highly compensated employees, as long as you make larger HSA contributions to your non-highly compensated employees. By separating these employee classes, you can make comparable HSA contributions to all of your eligible non-highly compensated employees without making any HSA contributions to your highly compensated employees.

As you see, you have some choices when it comes to how you handle your highly compensated employees within your HSA plan, but the long and short of it is that they can indeed participate in your employer-sponsored HSA.