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Can I pay an employee a monthly medical reimbursement?

If I don't offer group health coverage to my employees, can I pay a monthly medical reimbursement as an expense on an employee-by-employee basis? This would work similar to a car allowance.
Penny Morey answered January 27, 2009
URL: http://www.entrepreneur.com/answer/221840
What you are essentially asking is, "May I pay my employees more money?" And, of course, the answer is, "Yes, you can."

If you are going to pay full-time employees who have been on board X days a stipend that they may use to purchase medical insurance coverage, it should be a program that is clearly communicated and fairly administered. You might want to establish a couple of levels based on job grade (e.g. a higher monthly stipend for top management). But an employee-by-employee basis may put you into a difficult situation (defending your criteria/rationale).

Will you pay more to people with bigger families? More to males than females? You may get into that dangerous area called "discrimination," as this is essentially compensation, it should reflect the credo of equal pay for equal work.

You will need to state in your policy that these stipends are only given at management discretion and may be discontinued at any time with or without notice. Also, be sure that you state that these monies are not to be used when calculating overtime rates for non-exempt employees. But be prepared that this latter contention may be challenged at some time.

Lastly, you cannot require employees to use the extra monies to buy medical insurance.

I would recommend that you talk with a few insurance brokers to find a medical plan for which you could pay 50 percent of the cost for each employee so that a decent plan is offered to everyone on board. It may end up costing you less than giving everyone a monthly medical reimbursement and everyone will have access to coverage that way.

Penny is a seasoned human resources executive and consultant with over 25 years of diverse business experience in advising enterprise leaders on employment-related matters.