Section 125 Nondiscrimination Testing With Part-Time Staff
Forty-six percent of home care workers are part-time. That is not what fails Section 125 nondiscrimination testing. The three tests compare what an agency's highly paid people receive against what everyone else receives, and on a caregiver roster the part-timers are the everyone else. The number to check is the owner's.
Search "Section 125 nondiscrimination testing" and page one is compliance vendors selling testing packages. Sentinel Group, Alerus, AssuredPartners. Every one of those guides is written for an HR department with salaried employees, a fixed open enrollment window and a benefits committee on staff to run it. Home care does not appear.
That gap is why the question reaches owners the way it does. A vendor says nondiscrimination testing, the owner pictures an audit, then pictures a roster of caregivers working eighteen and twenty-four and thirty-one hours a week, and concludes the roster is the liability. Nobody is writing for them.
The rules were written to stop a company from routing tax-free benefits to its executives while the floor staff got nothing and paid for it in wages. Read them that way. A home care agency looks like the employer they were meant to protect.
My caregivers are part-time. Does that break the test?
No. Section 125 sets no hours threshold. The thirty-hour line owners keep colliding with belongs to group health carriers and to the ACA definition of a full-time employee, not to who may make a pretax election.
IRS Publication 15-B defines a highly compensated participant as an officer, a more than 5 percent shareholder, an employee who is highly compensated on the facts and circumstances, or the spouse or dependent of any of those. Hours are not in the definition.
What do the three tests actually measure?
AssuredPartners, a national employee benefits brokerage, names them in its compliance snapshot as the eligibility test, the benefits and contributions test, and the key employee concentration test. Each one compares a group at the top of the pay scale against everyone below it. None of them counts hours.
| Test | What it compares | Where a caregiver roster lands |
|---|---|---|
| Eligibility | Whether enough non-highly compensated employees can participate | Every W-2 caregiver eligible on the same terms |
| Benefits and contributions | Whether highly compensated employees select more nontaxable benefit than everyone else | Identical benefit for every participant |
| Key employee concentration | Whether key employees hold more than 25 percent of the total nontaxable benefits | The one that can actually fail, and it turns on participation |
Which number actually fails an agency?
The concentration test. Publication 15-B states that a plan favors key employees if more than 25 percent of the total nontaxable benefits under the plan go to key employees. For 2026 an officer counts as a key employee at annual pay above $235,000, and any owner of more than 5 percent counts regardless of pay.
At a twenty to eighty caregiver agency the key employees are the owner and whoever else holds equity or an officer title somewhere on the paperwork. That group is small. What decides the test is how many caregivers elect the plan alongside them.
Run it the other way. Six caregivers elect out of forty, two owners elect, and the key employees hold 25 percent of the benefit before anyone has done a single thing wrong. Low participation is the risk in that test, not part-time hours.
What this cannot tell you
Testing runs on your actual roster and elections after the plan year closes. No article produces that result. An agency with a clean design can still fail the concentration test when almost nobody signs up, and Publication 15-B describes the correction as taxable value added to the wages of the key employees.
Whether the design itself is sound is a separate question from whether it tests clean. On the Unify Wellness Plan, CBIZ wrote the CPA opinion and HitesmanLaw provided the legal assurance, and those two documents are what belongs in front of your own advisor. Read where the IRS has objected.
Doesn't this still cost money I don't have?
You ran that math on a raise and on a group plan. Both need new money. Two dollars an hour on a thirty-hour caregiver is $3,120, and employer FICA at 7.65 percent brings it to $3,359 a year, or $134,360 across forty caregivers. On a seven percent margin that is the margin.
Group health does not land softer. KFF puts the 2025 average single coverage premium at $9,325 with the worker contributing $1,440, which leaves $7,885 on the employer. A Section 125 wellness plan is a different instrument. It redirects money that is already leaving the business as employer payroll tax every pay period, which is why what the plan costs reads the way it does.
What would this look like at your agency?
Two inputs answer it: how many caregivers you have, and roughly what they earn. That is the whole ask, and it stays small on purpose.
The estimator takes those two numbers and shows what your agency currently pays in employer payroll tax, what turnover at the industry median costs, and what could be redirected into caregiver benefits instead. Thirty seconds, no signup.
UnifyWell's published example nets an employer roughly $640 per participating employee per year on a $44,000 earner, after the monthly administration fee. Caregiver wages sit below that. Across Home Care Wellness proposals the figure has landed between $300 and $900 per participating employee per year. That is a range and not a quote, and only your own numbers answer which of your caregivers qualify and what actually lands on their checks.
Open the estimatorFree, no signup. Have your own CPA read the plan documents before you commit to anything.
Home Care Wellness provides general information about Section 125 wellness plan structures, does not provide tax, legal or accounting advice, and a Section 125 wellness plan is not health insurance. Savings figures are estimates, not guarantees, and depend on your own payroll and participation. Testing outcomes turn on your own facts. Consult your own CPA and counsel before adopting any plan.
