Benefits Strategy for Companies Under 50 Employees (2026)

For small businesses, the ultimate benefits strategy for companies under 50 employees has shifted from rigid, traditional group plans to flexible, modern solutions. While offering health insurance is crucial for hiring and retaining top talent, the best approach today is a Health Reimbursement Arrangement (HRA). HRAs provide budget predictability for the company and empower employees with the choice to select their own individual health insurance, making it a game-changer for small teams.

This guide will explain why HRAs are a leading benefits strategy for companies under 50 employees and compare them directly to traditional options, helping you build the perfect plan that fits your budget and your team.

What is an ICHRA (Individual Coverage HRA)?

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is an employer funded health benefit. Instead of the company buying a one size fits all group insurance policy, it gives employees a monthly allowance of tax free money. Employees then use that allowance to buy their own individual health insurance plan, the one that works best for them.

Introduced in 2020, ICHRAs are available to companies of any size. A key feature is their flexibility. Employers have no contribution limits, so you can offer as much as your budget allows. You can also customize allowances for different types of employees, for instance offering different amounts to full time versus part time staff. To participate, an employee simply needs to be enrolled in a qualifying individual health plan.

What is a QSEHRA (Qualified Small Employer HRA)?

A Qualified Small Employer Health Reimbursement Arrangement, or QSEHRA, is a special HRA designed just for businesses with fewer than 50 full time employees. Like an ICHRA, it lets you reimburse your team for their insurance premiums and medical costs tax free.

The main differences are that QSEHRAs are only for small businesses that do not offer a group plan, and they have annual contribution limits set by the IRS. For example, in 2024, the maximum QSEHRA allowance was $6,150 for an individual and $12,450 for a family. These caps adjust each year for inflation. It’s a great entry level benefits strategy for companies under 50 employees looking for simplicity and affordability.

What About Traditional Small Group Health Plans?

The small group health plan is the classic approach. The employer chooses an insurance policy from a carrier and offers it to the team. The company pays a percentage of the premium, and the employee pays the rest, usually through a simple payroll deduction.

These plans are familiar and provide comprehensive coverage. However, they come with challenges for small businesses. Costs can be high, with the average annual premium for family coverage hitting nearly $24,000 in 2023. Insurers also typically require a high percentage of employees to enroll, often around 70 percent, which can be difficult for small, diverse teams to meet.

ICHRA vs. QSEHRA vs. Small Group Plan: A Head to Head Comparison

Choosing the right foundation for your benefits strategy for companies under 50 employees means understanding the core differences between these three models. For a deeper dive into how ICHRA compares to a traditional group plan, see our ICHRA vs. group plan guide.

Employer Cost Control

With a group plan, your costs are tied to premiums, which can rise unexpectedly each year. With an ICHRA or QSEHRA, you set a fixed monthly allowance. This gives you complete budget predictability. In fact, 86% of brokers say employers value ICHRAs specifically for this cost control. This financial stability is a cornerstone of a smart benefits strategy for companies under 50 employees.

Employee Choice

A group plan limits employees to the one or two plans the company picks. An ICHRA or QSEHRA empowers employees to choose any qualifying plan on the individual market. This means they can find a policy with the right network, coverage level, and price for their specific needs, a feature that 66.2% of brokers cite greater employee choice as a top benefit of ICHRA.

Administrative Work

HRAs require you to have legal plan documents and a process for verifying expenses, but there are no participation minimums to track or annual rate negotiations. The entire process can be made nearly hands off by using a dedicated platform. For example, platforms like SimplyHRA for employers can get an ICHRA set up in minutes and automate the compliance and reimbursement work for you.

Putting It Into Practice: A Real World Scenario

Imagine a startup with employees spread across multiple states. A traditional group plan is a logistical headache. Finding a single insurance network that works well for everyone is nearly impossible, and meeting the 75% participation minimum in one state is proving tough. Plus, the quoted premiums would strain their budget. This is a common challenge that stalls many a benefits strategy for companies under 50 employees.

Instead, the startup opts for an ICHRA. They set a budget they can afford, offering different monthly allowances for single employees and employees with families. Because their California team faces higher insurance costs, they create a separate employee class to give them a slightly higher allowance.

Employees in each state use the allowance to buy a plan that works where they live. Some employees enroll in plans and get reimbursed. Others, who are covered under a spouse’s plan or find a better deal on the ACA marketplace, simply don’t use the HRA. The company isn’t penalized, and the benefit still stands for everyone else. This flexibility is exactly why HRAs are becoming a go to solution.

Weighing the Pros and Cons of Each Option

Every benefits strategy for companies under 50 employees involves tradeoffs. Here’s a clear breakdown of what to expect.

The Pros and Cons of an ICHRA

Pros:

• Predictable Costs: You set the budget, with no surprise premium hikes.
• Total Flexibility: No company size limits and you can customize allowances by employee class.
• Maximum Employee Choice: Staff can pick any qualifying plan on the market.
• No Participation Minimums: The plan works even if only one person uses it.
• Great for Remote Teams: It works seamlessly for employees in any state.

Cons:

• Employee Responsibility: Your team has to shop for and purchase their own insurance.
• Subsidy Interaction: An “affordable” ICHRA can make employees ineligible for ACA premium tax credits, which could be a disadvantage for lower wage workers.
• Setup Complexity: The rules for classes and compliance require careful setup, which is why using an administrator is highly recommended.

The Pros and Cons of a QSEHRA

Pros:

• Simplicity: Designed to be a straightforward option for very small businesses.
• Affordability: Annual caps keep costs contained, and there are no minimum contribution rules.
• Tax Free: Reimbursements are tax free for everyone.
• Helps Everyone: Even employees on a spouse’s plan can use it for out of pocket medical expenses.

Cons:

• Strictly for Small Employers: You can only offer a QSEHRA if you have fewer than 50 employees and no group plan.
• Contribution Caps: You legally cannot offer more than the annual IRS limit, which may not be enough in high cost areas.
• Limited Customization: You can’t create different allowance classes for different types of employees.

The Pros and Cons of a Small Group Plan

Pros:

• Familiar and Simple for Employees: Most people understand how group insurance works. Enrollment is easy.
• Rich Coverage: Group plans often provide comprehensive benefits with broad networks.
• Tax Credit Potential: Very small, low wage employers may qualify for the Small Business Health Care Tax Credit to offset costs.

Cons:

• High and Unpredictable Costs: Premiums are expensive and tend to increase every year.
• Participation Rules: Failing to meet minimum enrollment can cause the insurer to deny coverage.
• One Size Fits All: The plan you choose may not be a good fit for everyone on your team.
• Geographic Limits: It’s difficult and complex to cover employees in multiple states.

How to Build Your Benefits Strategy for Companies Under 50 Employees

Ready to make a choice? A successful benefits strategy for companies under 50 employees comes down to a few key factors.

• Your Budget: An HRA offers predictable, fixed costs. A group plan means variable costs tied to premiums. If budget control is your top priority, an HRA is the clear winner.
• Your Team’s Needs: Are your employees young and tech savvy, or do they have families and prefer a traditional, hands off approach? Do many already have coverage through a spouse? Surveying your team can provide invaluable direction.
• Administrative Capacity: Do you have an HR person to manage renewals and carrier relationships? If not, the simplicity of an HRA administered through a platform like SimplyHRA can save you a massive amount of time and effort.
• Employee Locations: If you have a distributed or multistate workforce, an ICHRA is logistically far simpler than trying to manage multiple group plans.

Your Step by Step Rollout Checklist

Once you’ve decided on an approach, here is a simple checklist to guide your implementation.

1. Assess Your Budget and Needs: Determine what you can afford per employee and what your team values most.
2. Choose Your Benefit Type: Select an ICHRA, QSEHRA, or group plan based on your key decision factors.
3. Consult with an Expert: Engage an HRA administrator or an insurance broker to help you design the specifics.
4. Finalize Plan Details: Set your HRA allowances or choose your group plan’s contribution structure.
5. Prepare Legal Documents: Every health benefit, including HRAs, requires a formal plan document. An administrator can provide this for you.
6. Notify and Enroll Employees: For an HRA, you must provide a written notice at least 90 days before the plan starts. Then, guide employees through the enrollment process.
7. Set Up Administration: Work with your HRA platform or insurer to process enrollments, set up reimbursements, and manage payroll deductions.
8. Provide Ongoing Support: Be ready to answer questions and provide resources to help your team use their new benefit effectively.
9. Review Annually: Revisit your benefits strategy for companies under 50 employees each year to adjust allowances or review group plan renewal rates.

Diving Deeper: Key HRA Concepts and Strategies

If you are leaning toward an HRA, here are some important details to consider as you fine tune your approach.

Setting the Right ICHRA Monthly Allowance

Since ICHRAs have no legal maximum or minimum contribution, you have a lot of control. To set the right amount, consider your budget, research the cost of individual plans in your area, and decide if you want to vary allowances by employee class (like full time vs. part time), family size, or even age.

Choosing What to Reimburse: Premiums vs. Medical Expenses

You can design your HRA to reimburse insurance premiums only, or you can allow it to cover both premiums and other qualified medical expenses like copays and deductibles. QSEHRA automatically covers both. For an ICHRA, limiting it to premiums can simplify administration, while including medical expenses makes the benefit more flexible for employees.

Navigating Legal Documents and Notice Requirements

An HRA is a formal group health plan, which means it requires legal plan documents and a Summary Plan Description (SPD). You also must provide employees with a written notice at least 90 days before the plan year begins. A good HRA administrator will generate all of these documents for you, ensuring you stay compliant with federal regulations.

Why No Minimum Participation is a Game Changer

Unlike group plans that often demand 70% enrollment, HRAs have no minimum participation requirement. This is a massive advantage for small businesses. You can offer the benefit to everyone without worrying that low enrollment will jeopardize the plan. It’s one of the main reasons 83% of employers offering an ICHRA or QSEHRA in 2025 had not previously offered any coverage.

A Winning Strategy for Distributed and Multistate Teams

For companies with remote workers in different states, HRAs are a perfect fit. Instead of juggling multiple state specific group plans, you offer one unified HRA. Each employee then buys a plan on their local individual market, ensuring they have access to local doctors and networks. This simplifies administration and makes your benefit equitable for everyone, no matter where they live.

Using an Age Based Allowance Strategy

Health insurance premiums on the individual market are tied to age. To ensure your benefit is equitable, ICHRA and QSEHRA rules allow you to offer higher allowances to older employees to offset their higher costs. For an ICHRA, the allowance for the oldest employee can be up to three times that of the youngest. This helps make coverage equally affordable for everyone on your team.

Critical Compliance and Enrollment Details

Navigating the rules around insurance enrollment and subsidies is a critical part of a successful HRA launch.

Marketplace Subsidies and Affordability Rules

Employees generally cannot receive ACA marketplace subsidies (Premium Tax Credits) if they are offered affordable employer sponsored coverage. An ICHRA offer can make an employee ineligible for these subsidies if it’s deemed “affordable under ACA rules.” A QSEHRA, on the other hand, reduces an employee’s potential subsidy dollar for dollar. It’s important to understand this interaction, especially if you have lower wage employees who might otherwise receive a large subsidy.

Enrollment Timing and the 90 Day Notice Rule

As mentioned, employers must notify employees about an HRA at least 90 days before the plan starts. This timing is designed to align with the individual market’s Open Enrollment Period, which typically runs from November 1st to January 15th. Offering a new ICHRA also triggers a 60 day Special Enrollment Period, giving your team a chance to buy a plan outside of the standard window.

Getting Help and Communicating Your Plan

Launching a new benefit requires great tools and even better communication.

Creating an Effective Employee Communication Plan

Don’t just send an email and hope for the best. A new benefits strategy for companies under 50 employees, especially an HRA, requires education.

• Start Early: Announce the new benefit and explain why you chose it.
• Use Multiple Channels: Hold a meeting, send a follow up email, and create a reference guide.
• Provide Resources: Give employees links to the health insurance marketplace and connect them with a broker or enrollment expert who can help them choose a plan.
• Be Clear on Details: Make sure everyone knows their allowance amount, what it covers, and how to submit for reimbursement.

How to Select the Right HRA Administrator

Managing an HRA yourself involves a lot of compliance and paperwork. A third party administrator, or TPA, can handle it all for you. Look for a provider that offers robust compliance support, an easy to use platform for employees, and great customer service.

Modern platforms are designed to make this incredibly simple. For instance, a solution like SimplyHRA not only handles the legal documents and reimbursements but also integrates directly with payroll systems, provides an AI powered chatbot for instant answers, and offers licensed broker support to help your employees choose the best plan.

Exploring Other Small Business Health Options

While ICHRA, QSEHRA, and group plans are the main players, there are a couple of other programs to be aware of.

The Excepted Benefit HRA (EBHRA) Supplement

An EBHRA is a limited purpose HRA that can only be offered alongside a traditional group health plan. It has a low annual cap (around $2,100 for 2024) and can be used to reimburse employees for “excepted benefits” like dental and vision care. It’s a way to supplement a group plan, not replace it.

Using the SHOP Marketplace for Group Plans

The Small Business Health Options Program (SHOP) is a government marketplace where small employers (1 to 50 employees) can shop for group health plans. Its primary purpose today is to act as the gateway to the Small Business Health Care Tax Credit.

The Small Business Health Care Tax Credit

This federal tax credit can reimburse eligible small businesses for up to 50% of the premiums they pay for a group plan. However, the eligibility rules are very strict: you must have fewer than 25 full-time equivalent employees, pay average annual wages below a certain threshold less than $67,000 per FTE (tax year 2025), contribute at least 50% of premium costs, and buy your plan through the SHOP marketplace.

Frequently Asked Questions About Small Business Benefits

What is the best benefits strategy for companies under 50 employees?

There is no single “best” strategy, as it depends on your budget, team demographics, and administrative preferences. However, HRAs like the ICHRA are rapidly gaining popularity due to their budget control, flexibility for remote teams, and high level of employee choice.

What is the cheapest way to offer health benefits?

A QSEHRA or an ICHRA with a modest allowance is often the most budget friendly way to start. Because there are no minimum contribution requirements, you can offer an amount that fits your company’s finances, and it will still be a valuable, tax free benefit for your employees.

Can I offer an ICHRA to just one employee?

Yes. Unlike group plans, ICHRAs have no minimum participation requirements. You must offer it to all employees within a specific class (for example, all full time employees), but the plan is viable even if only one person in that class decides to use it.

Do I need a broker to set up an ICHRA?

While you don’t legally need a broker to set up an ICHRA, it’s highly recommended to work with an expert HRA administrator. A platform like SimplyHRA provides the compliance framework, software for reimbursements, and licensed broker assistance to help your employees pick a plan, combining everything you need in one place.

Is a health insurance stipend the same as an HRA?

No. A stipend is simply extra taxable income you give to employees. An HRA is a formal, tax advantaged health benefit. Reimbursements from an HRA are tax free for both the employer and the employee, making it a much more efficient way to help with healthcare costs.

What happens if my company grows past 50 employees?

If you are using a QSEHRA, you will need to transition to a different benefit, like an ICHRA or a group plan, once you become an Applicable Large Employer (ALE). If you are already using an ICHRA, it can scale with you seamlessly. You will just need to ensure your allowance structure meets ACA affordability rules to avoid potential penalties.