Skip to main content
  • Foundation
  • Executive network
  • CEO Circle
  • Enterprise Solutions
  • Linkage Logo
  • Store
  • Sign In
  • Account
    • My Account
    • Logout
    • Global
    • India
    • MENA
SHRM
About
Book a Speaker
Join Today
Renew
Rejoin Now
Renew
  • Membership
  • Certification
    Certification

    Smiling asian student studying in library with laptop books doing online research for coursework, making notes for essay homework assignment, online education e-learning concept
    Get Certified!

    Be recognized as an HR leader with your SHRM-CP or SHRM-SCP credential.

    • How to Get Certified

      Demonstrate your ability to apply HR principles to real-life situations. No other HR certification compares.

      • How to Get Certified
      • Eligibility Criteria
      • Exam Details and Fees
      • SHRM-CP
      • SHRM-SCP
      • Which Certification is Best for Me
      • Certification FAQs
    • Prepare for the Exam

      Give yourself the best chance to pass your SHRM certification exam.

      • Exam Preparation
      • SHRM BASK
      • SHRM Learning System
      • Instructor-Led Learning
      • Self-Study
      • Study Aids & Add-ons
    • Recertification

      Recertify your SHRM Credentials before your end date!

      • Specialty Credentials
      • Qualifications
  • Topics & Tools
    Topics & Tools

    Stay up to date with workplace news and leverage our vast library of resources to streamline day-to-day HR tasks.

    The white house in washington, dc.
    Executive Order Impact Zone

    Do not abandon, but evaluate and evolve. It is about legal, equal opportunity for all.

    • News & Trends

      Follow breaking news and emerging workplace trends.

      Legal & Compliance

      Stay informed on workplace legal updates and their impacts.

      From the Workplace

      Explore diverse perspectives from your peers on today's workplaces.

      Flagships

      Get curated collections of podcasts, videos, articles, and more produced by SHRM.

    • HR Topics
      • AI in the Workplace
      • Civility at Work
      • Compensation & Benefits
      • Inclusion & Diversity
      • Talent Acquisition
      • Workplace Technology
      • Workplace Violence Prevention
      SEE ALL
      SHRM Research
    • Tools & Samples

      Access member resources and tools to streamline HR tasks.

      • Forms & Checklists
      • How-To Guides
      • Interactive Tools
      • Job Descriptions
      • Policies
      • Toolkits
      SEE ALL
      Ask an Advisor
  • Events & Education
    Events & Education

    SHRM25 in San Diego, June 29 - July 2, 2025
    Join us for SHRM25 in San Diego

    Register for the World’s Largest HR Conference being held on June 29 - July 2, 2025

    • Events
      • SHRM25
      • The AI+HI Project 2025
      • INCLUSION 2025
      • Talent 2026
      • Linkage Institute 2025
      SEE ALL
      Webinars
    • Educational Programs

      Designed and delivered by HR experts to empower you with the knowledge and tools you need to drive lasting change in the workplace.

      Specialty Credentials

      Demonstrate targeted competence and enhance credibility among peers and employers.

      Qualifications

      Gain a deeper understanding and develop critical skills.

    • Team Training & Development

      Customized training programs unique to your organization’s needs.

  • Business Solutions
  • Advocacy
    Advocacy

    Make your voice heard on public policy issues impacting the workplace.

    Advocacy
    SHRM's President & CEO testifies to Congress on "The State of American Education"
    • Policy Areas
      • Workforce Development
      • Workplace Inclusion
      • Workplace Flexibility & Leave
      • Workplace Governance
      • Workplace Health Care
      • Workplace Immigration
      State Affairs

      SHRM advances policy solutions in state legislatures nationwide.

      Global Policy

      SHRM is the go-to for global HR leaders and businesses on workplace matters.

    • Advocacy Team (A-Team)

      SHRM’s A-Team is a key member benefit, giving you the tools, insights, and opportunities to shape workplace policy and drive real impact.

      Take Action

      Urge lawmakers to support policies that create lasting, positive change.

      Advocacy & Legislative Resources

      Access SHRM’s curated policy materials and content.

    • SHRM-Led Coalitions
      • Generation Cares
      • The Section 127 Coalition
      • Learn More & Partner with SHRM Government Affairs
  • Community
    Community

    Woman raising hand in group
    Find a SHRM Chapter

    Easily find a local professional or student chapter in your area.

    • Chapters

      Find local connections from over 607 chapters and state councils and create your personalized HR network.

      SHRM Connect

      Post polls, get crowdsourced answers to your questions and network with other HR professionals online.

      SHRM Northern California

      Join SHRM members in the greater San Francisco Bay area for local events and networking.

    • Membership Councils

      Learn about SHRM's five regional councils and the Membership Advisory Council (MAC).

      • Membership Advisory Council
      • Regional Councils
    • Volunteers

      Learn about volunteer opportunities with SHRM.

      • Volunteer Leader Resource Center
Close
  • Membership
  • Certification
    back
    Certification
    Smiling asian student studying in library with laptop books doing online research for coursework, making notes for essay homework assignment, online education e-learning concept
    Get Certified!

    Be recognized as an HR leader with your SHRM-CP or SHRM-SCP credential.

    • How to Get Certified

      Demonstrate your ability to apply HR principles to real-life situations. No other HR certification compares.

      • How to Get Certified
      • Eligibility Criteria
      • Exam Details and Fees
      • SHRM-CP
      • SHRM-SCP
      • Which Certification is Best for Me
      • Certification FAQs
    • Prepare for the Exam

      Give yourself the best chance to pass your SHRM certification exam.

      • Exam Preparation
      • SHRM BASK
      • SHRM Learning System
      • Instructor-Led Learning
      • Self-Study
      • Study Aids & Add-ons
    • Recertification

      Recertify your SHRM Credentials before your end date!

      • Specialty Credentials
      • Qualifications
  • Topics & Tools
    back
    Topics & Tools

    Stay up to date with workplace news and leverage our vast library of resources to streamline day-to-day HR tasks.

    The white house in washington, dc.
    Executive Order Impact Zone

    Do not abandon, but evaluate and evolve. It is about legal, equal opportunity for all.

    • News & Trends

      Follow breaking news and emerging workplace trends.

      Legal & Compliance

      Stay informed on workplace legal updates and their impacts.

      From the Workplace

      Explore diverse perspectives from your peers on today's workplaces.

      Flagships

      Get curated collections of podcasts, videos, articles, and more produced by SHRM.

    • HR Topics
      • AI in the Workplace
      • Civility at Work
      • Compensation & Benefits
      • Inclusion & Diversity
      • Talent Acquisition
      • Workplace Technology
      • Workplace Violence Prevention
      SEE ALL
      SHRM Research
    • Tools & Samples

      Access member resources and tools to streamline HR tasks.

      • Forms & Checklists
      • How-To Guides
      • Interactive Tools
      • Job Descriptions
      • Policies
      • Toolkits
      SEE ALL
      Ask an Advisor
  • Events & Education
    back
    Events & Education
    SHRM25 in San Diego, June 29 - July 2, 2025
    Join us for SHRM25 in San Diego

    Register for the World’s Largest HR Conference being held on June 29 - July 2, 2025

    • Events
      • SHRM25
      • The AI+HI Project 2025
      • INCLUSION 2025
      • Talent 2026
      • Linkage Institute 2025
      SEE ALL
      Webinars
    • Educational Programs

      Designed and delivered by HR experts to empower you with the knowledge and tools you need to drive lasting change in the workplace.

      Specialty Credentials

      Demonstrate targeted competence and enhance credibility among peers and employers.

      Qualifications

      Gain a deeper understanding and develop critical skills.

    • Team Training & Development

      Customized training programs unique to your organization’s needs.

  • Business Solutions
  • Advocacy
    back
    Advocacy

    Make your voice heard on public policy issues impacting the workplace.

    Advocacy
    SHRM's President & CEO testifies to Congress on "The State of American Education"
    • Policy Areas
      • Workforce Development
      • Workplace Inclusion
      • Workplace Flexibility & Leave
      • Workplace Governance
      • Workplace Health Care
      • Workplace Immigration
      State Affairs

      SHRM advances policy solutions in state legislatures nationwide.

      Global Policy

      SHRM is the go-to for global HR leaders and businesses on workplace matters.

    • Advocacy Team (A-Team)

      SHRM’s A-Team is a key member benefit, giving you the tools, insights, and opportunities to shape workplace policy and drive real impact.

      Take Action

      Urge lawmakers to support policies that create lasting, positive change.

      Advocacy & Legislative Resources

      Access SHRM’s curated policy materials and content.

    • SHRM-Led Coalitions
      • Generation Cares
      • The Section 127 Coalition
      • Learn More & Partner with SHRM Government Affairs
  • Community
    back
    Community
    Woman raising hand in group
    Find a SHRM Chapter

    Easily find a local professional or student chapter in your area.

    • Chapters

      Find local connections from over 607 chapters and state councils and create your personalized HR network.

      SHRM Connect

      Post polls, get crowdsourced answers to your questions and network with other HR professionals online.

      SHRM Northern California

      Join SHRM members in the greater San Francisco Bay area for local events and networking.

    • Membership Councils

      Learn about SHRM's five regional councils and the Membership Advisory Council (MAC).

      • Membership Advisory Council
      • Regional Councils
    • Volunteers

      Learn about volunteer opportunities with SHRM.

      • Volunteer Leader Resource Center
Join Today
Renew
Rejoin Now
Renew
  • Store
    • Global
    • India
    • MENA
  • About
  • Book a Speaker
  • Foundation
  • Executive network
  • CEO Circle
  • Enterprise Solutions
  • Linkage Logo
SHRM
Sign In
  • Account
    • My Account
    • Logout
Close

  1. Topics & Tools
  2. Workplace News & Trends
  3. Compensation & Benefits
  4. Tying Health Plan Premiums to Salary Can Aid Lower-Paid Earners
Share
  • Linked In
  • Facebook
  • Twitter
  • Email

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Vivamus convallis sem tellus, vitae egestas felis vestibule ut.


Error message details.

Copy button
Reuse Permissions

Request permission to republish or redistribute SHRM content and materials.


Learn More
News

Tying Health Plan Premiums to Salary Can Aid Lower-Paid Earners

Should executives and clerical workers pay the same amount for health coverage?

October 19, 2017 | Joanne Sammer

A man and woman looking at a laptop with an insurance plan on it.


As the cost of health insurance continues to increase, some employers are growing concerned that the burden of employee out-of-pocket contributions is falling too heavily on lower-paid workers. As a result, more employers are considering plan premium tiers that base employees' contributions for health coverage on their pay level. Higher-paid employees are then, in effect, subsidizing coverage for their lower-paid co-workers.

This approach is not widespread, but a significant portion of employers use it, according to HR consultancy Aon Hewitt. The firm's health benefits data covering 1,600 employers found that 21 percent set health insurance premium amounts based on employee pay levels.

Some employers may simply feel, for fairness' sake, that those earning more should pay more of the cost of health care. Others may introduce pay-based contributions for strategic reasons. Or both considerations may come into play.

One company with multiple lines of business introduced pay-based premiums to mitigate the differences in pay between lower-level staff and a large number of highly paid employees in sales, the executive ranks and the firm's high-technology business unit, said David Fortosis, senior vice president with Aon Hewitt in Lincolnshire, Ill.

"Employers have changed plans to increase co-insurance and co-pays and increased employee contributions so much that they feel that they can't do much more on that side," said Christopher Calvert, senior vice president and health practice leader for Segal Consulting, an HR advisory firm in New York City. "They are also growing concerned about meeting the affordability requirements under the Affordable Care Act. As a result, this approach is gaining some traction."

In 2018, employer-sponsored coverage will be considered affordable if, for the least expensive plan option, an employee's required contribution for self-only coverage does not exceed 9.56 percent of the employee's W-2 income.

Choosing a Pay-Based Structure

Although employers could tie contributions to a flat percentage of each employee's pay, setting up a few premium payment tiers linked to specified pay ranges is another approach. Under a three-tier structure, for example:

  • Employees earning up to $50,000 per year might contribute 3 percent of pay,
  • Those earning between $50,001 to $100,000 might contribute 5 percent of pay.
  • Better-compensated employees earning more than $100,000 might contribute 7 percent of pay.

Employers that prefer to set a flat rate for employee contributions could replace percentages in each tier with contributions of a specific dollar amount.

The ease of introducing these pay-based contributions depends on how adaptable the payroll system is. "If this approach requires a lot of manual fixes to accommodate the different contributions, then chances of introducing errors into the system increase," Fortosis said.

"The challenge is in the details," Calvert agreed. For example, when an employee gets a promotion and a raise that moves the individual into a higher contribution tier, he or she may have a negative reaction if the higher contribution for health benefits lessens the financial benefit of the salary increase. Employers may need to consider this when setting the amount of pay raises and may need to determine whether to phase employees into a higher tier over time rather than all at once.

[SHRM members-only Q&A: Are employers allowed to offer different benefits to different employees and to charge more for the same benefit, or is this a discriminatory practice?]

Variable Pay Challenges

Implementing a tiered premium structure can be a challenge for employers with many employees who earn variable or hourly pay. In these cases, employers may not know how much a specific employee will make in a given year and, therefore, cannot set contribution amounts for those workers.

However, employers can use current base pay or, for hourly workers, their regular rate of pay—or use an employee's previous year's pay—to set the tiers and calculate contributions.

Communicating the Change

When putting a new contribution structure in place, explain the reasons behind the change, such as the organization's commitment to providing affordable health care to all employees. 

Be prepared to respond to better-paid employees who are unhappy because their monthly premiums will be higher. Note, for instance, those benefits that are richer for top earners. If 401(k) match contributions and annual bonuses are based on a percentage of pay—or bonuses are awarded at a higher percentage of pay as incomes rise—or if there are deferred compensation programs and supplemental retirement benefits only for highly compensated employees, this is a good time to point that out.

Complying with Nondiscrimination Rules

Employers should be aware that there are different nondiscrimination requirements to consider when charging employees different premiums, advised Danielle Capilla, senior vice president for compliance and operations at United Benefit Advisors, in a recent blog post.

"Generally, under HIPAA nondiscrimination rules, employers have discretion when structuring their benefits plans and may make distinctions among employee populations regarding access to and the level of benefits offered," as long as these differences are based on "bona fide employment-based classifications," she noted.

Employers also should review nondiscrimination requirements under Internal Revenue Code Section 125 (for cafeteria plans) and Section 105(h) (for self-funded plans), which say, for instance, that benefit plans cannot discriminate in favor of highly compensated individuals or key employees. 

That shouldn't be an issue if the premium tiers are designed to help lower-paid employees, but "as a best practice, any time an employer has a plan design with different levels of employer contributions, the employer should run the applicable testing to ensure its plan is compliant," Capilla noted.

A Long-Term Choice

If employers are going to adopt a pay-based health insurance premium structure, they must be sure it is the right choice for the long term. Should an employer switch back to a system with all plan enrollees making the same contribution to health coverage, no matter what their pay level, then lower-paid employees would experience a large and sudden increase in their premium contributions.

Employers could try to mitigate the financial stress of switching back to equal contributions by raising the rate for lower-paid employees over a period of years.

Still, before shifting to a pay-based premium structure, it's best for an employer to be certain of why it's doing so. "This is a fairly long-term commitment," Calvert said. "This is not something that can be changed easily."


Wage-Based Cost-Sharing More Common at Large Employers

A substantial share of the largest U.S. employers are designing their benefits to assist lower-income employees by implementing wage-based cost-sharing arrangements, according to the Washington, D.C.-based National Business Group on Health (NBGH), which represents corporate health plan sponsors.

NBGH's Large Employers' 2018 Health Care Strategy and Plan Design Survey found that 34 percent of large employers operating in the U.S. have in place wage-based premium contributions for their health plans. While only 3 percent of employers have wage-based deductibles, 8 percent do so for out-of-pocket maximums.

For those employers offering plans with health accounts, some even have wage-based health account contributions (7 percent).

The prevalence of any of these types of arrangements varies by industry, NBGH found. For example, 53 percent of large banking/financial services companies have wage-based premiums in place.

The survey was fielded between May 22 and June 26, 2017, and reflects the health offerings of 148 U.S. employers, two-thirds of which belong to the Fortune 500 or the Global Fortune 500, and nearly one-third of which belong to the Fortune 100.


Joanne Sammer is a New Jersey-based business and financial writer.

Related SHRM Article:

Earn Less, Pay Less: Salary-Based Premiums, HR Magazine, March 2012 

Was this article useful? SHRM offers thousands of tools, templates and other exclusive member benefits, including compliance updates, sample policies, HR expert advice, education discounts, a growing online member community and much more. Join/Renew Now and let SHRM help you work smarter.


Benefits
Health Care Benefits
Relationship Management

Artificial Intelligence in the Workplace

​An organization run by AI is not a futuristic concept. Such technology is already a part of many workplaces and will continue to shape the labor market and HR. Here's how employers and employees can successfully manage generative AI and other AI-powered systems.



Related Content

Kelly Dobbs Bunting speaks onstage at SHRM24
(opens in a new tab)
News
Why AI+HI Is Essential to Compliance

HR must always include human intelligence and oversight of AI in decision-making in hiring and firing, a legal expert said at SHRM24. She added that HR can ensure compliance by meeting the strictest AI standards, which will be in Colorado’s upcoming AI law.

(opens in a new tab)
News
A 4-Day Workweek? AI-Fueled Efficiencies Could Make It Happen

The proliferation of artificial intelligence in the workplace, and the ensuing expected increase in productivity and efficiency, could help usher in the four-day workweek, some experts predict.

(opens in a new tab)
News
How One Company Uses Digital Tools to Boost Employee Well-Being

Learn how Marsh McLennan successfully boosts staff well-being with digital tools, improving productivity and work satisfaction for more than 20,000 employees.

HR Daily Newsletter

Stay up to date with the latest HR news, trends, and expert advice each business day.

Success title

Success caption

Manage Subscriptions
  • About SHRM
  • Careers at SHRM
  • Press Room
  • Contact SHRM
  • Book a SHRM Executive Speaker
  • Advertise with Us
  • Partner with Us
  • Copyright & Permissions
  • Post a Job
  • Find an HR Job
Follow Us
  • LinkedIn
  • Facebook
  • Twitter
  • Instagram
  • YouTube
  • SHRM Newsletters
  • Ask An Advisor

© 2025 SHRM. All Rights Reserved

SHRM provides content as a service to its readers and members. It does not offer legal advice, and cannot guarantee the accuracy or suitability of its content for a particular purpose. Disclaimer


  1. Privacy Policy

  2. Terms of Use

  3. Accessibility

Join SHRM for Exclusive Access to Member Content

SHRM Members enjoy unlimited access to articles and exclusive member resources.

Already a member?
Free Article
Limit Reached

Get unlimited access to articles and member-exclusive resources.

You've reached the limit of 1 free article this month. Join to access unlimited articles and member-only resources.

Already a member?
Free Article
Exclusive Executive-Level Content

This content is for the SHRM Executive Network and Executive Content Subscription members only.

You've reached the limit of 1 free article this month. Join the Executive Network and enjoy unlimited content.

Already a member?
Free Article
Exclusive Executive-Level Content

This content is for the SHRM Executive Network and Executive Content Subscription members only.

You've reached the limit of 1 free article this month. Join and enjoy unlimited access to SHRM Executive Network Content.

Already a member?
Unlock Your Career with SHRM Membership

Please enjoy this free resource! Join SHRM for unlimited access to exclusive articles and tools.

Already a member?

Your membership is almost expired! Renew today for unlimited access to member content.

Renew now

Your membership has expired. Renew today for unlimited access to member content.

Renew Now

Your Executive Network membership is nearing its expiration. Renew now to maintain access.

Renew Now

Your membership has expired. Renew your Executive Network benefits today.

Renew Now