Ask the Expert: OK to Waive Benefits Waiting Period for New Hire?

As part of the negotiations for a new hire’s total compensation package, the candidate has asked the company to waive the health benefits eligibility period and start benefits immediately. Can the company agree to this for some new hires and not others? Would this put the company in jeopardy of potential discrimination claims?

Thank you for your inquiry regarding allowing a new hire to waive the benefits eligibility period, but not allowing the same waiver for others.

You are right to be concerned about potential discrimination claims for this practice.

Though ERISA and the Affordable Care Act set maximum limits on the benefits eligibility waiting period that can be required of full-time employees (90 days after hire, plus an additional 30 days if a bona-fide new hire orientation period is used), there is no minimum waiting period. In fact, many employers choose to waive the benefits waiting period entirely, as the cost of providing an additional month to three months of benefits coverage may be negligible if it enables the company to attract and hire the most desirable employees without those hires having to worry about a gap in benefits coverage.

However, though it is certainly permissible for you to waive the benefits period, this practice should be applied consistently and equally across the board.

First, ERISA requires plan administrators to apply the policies of covered health insurance programs, including waiting periods, consistently. Therefore, waiving the waiting period for one new hire could violate these requirements and result in penalties. In a worst-case scenario, the waiting period could be declared invalid altogether (due to arbitrary and inconsistent administration), which could expose the employer to additional benefits coverage liability.

Additionally, as you have noted, waiving the benefits eligibility plan for some employees, but not others, could also create the appearance of discrimination and could give rise to claims under other federal and state laws including the ADA and Title VII.

Therefore, we recommend that you consider other alternatives. One option might include offering the candidate a hiring bonus or stipend that would allow him or her to seek short term coverage until eligible for the group plan. Certainly another alternative, especially if you foresee the waiting period to be problematic for other candidates in the future, would be to work with your benefits administrator and determine whether your company could reduce or eliminate the waiting period altogether.