Health insurance is a great benefit to offer employees. 71% of all private businesses offer health benefits. But what happens when employees want to opt out of employer health insurance? They waive coverage.

It’s rare, but you need to know what to do when an employee wants to waive coverage. Learn how health insurance affects payroll, how employees can opt-out, and more.

Health insurance and payroll

According to the Affordable Care Act, you must offer health insurance if you have over 50 full-time equivalent employees. Many small businesses offer health insurance even though it’s not required. Most companies pay at least a portion of the health insurance premiums for each employee, and the employee pays the rest.

When employees contribute toward their insurance, you deduct the amount from their paychecks. When an employee decides to waive coverage, you do not withhold the amount from their wages. Make sure you make the correct payroll change.

With our integrated benefits and payroll solution, it’s easy for our clients to update employee selections, but other companies may need to process changes manually and in different systems.

Why would an employee waive coverage?

There are many reasons employees could have for opting out of health insurance. They might have a spouse with health insurance, be on their parents’ plan, or receive better coverage through an independent plan.

Employees are not required to participate in benefits programs, including health insurance. There is no penalty for opting out of coverage. When employees don’t want health insurance from their employer, they waive coverage for themselves or on behalf of a family member who was previously under their plan.

Employees can only waive coverage during specific time periods:

  • When the employee starts working at your company
  • During open enrollment
  • If your business offers new coverage plans
  • If the employee has a family status change, which is a qualifying life event that allows them to remove benefits (e.g., marriage, divorce, birth)

Employee health insurance waiver form

If an employee wants to opt out of employer-sponsored insurance, we provide them with a health insurance waiver form. The employee must include information like their name, Social Security number, whom they are waiving coverage for, and why they are waiving coverage on the waiver of coverage form. Then, the employee must sign and date the form.

After the employee fills out the waiver form, do not withhold insurance premiums from their paychecks. Keep a copy of their health insurance waiver form in your payroll records for at least three years. It depends on your plan; employees might need to sign waive coverage forms annually if they do not want insurance. If employees must sign yearly, make sure to distribute and collect forms during open enrollment.

Painless Administration with PT

Remember to stay organized, communicate the plan’s benefits to your employees, and talk with your insurance provider if you have any questions. Administering benefits takes time, effort, knowledge, and patience.

Consider outsourcing your benefits administration and payroll to PT Business Solutions for processing, which reduces errors and eases your administrative burden, and minimizes compliance risks.

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