HSA Employer and Employee Contributions

Hi All,

For employers that offer an HSA and HSA Employer Contribution, what is the best practice for when employees leave the company? Medical benefits are scheduled to term on last day of month (in the example below, it would end on 2/28). When should the employer stop their EE & ER contributions? For example, pay period is from 2/17/2025 - 3/2/2025 and pay date is 3/7/2025. If an employee terminates on 2/24, should they receive the full employer contribution even if the pay date falls in March? What about their EE contributions? Should employers still deduct the EE contributions from their March check, even if benefits ended on 2/28? 

I don't think there's any right answer here.  It's just a matter of finding an approach that works for the employer and applying it consistently.

For the employer contribution piece, that's a company policy matter.  Employers have full discretion in designing their HSA contribution approach.  The employee contribution is subject to the Section 125 cafeteria plan rules, but there is no clear guidance on how to address final paychecks.  In any case, I don't consider any preferred approach to be concern given that the irrevocable election rule doesn't apply to employee HSA contribution elections.

So again, best practice is really just to apply whatever approach they prefer in a consistent manner.

To you last question--Given that HSA eligibility is tied to the first day of each calendar month, I would recommend not including the HSA contribution piece on a paycheck that falls in the following month post-termination.  Including the contribution could result in contributions that exceed the proportional limit.

Thank you @Brian Gilmore. What about if an employee leaves the company at the beginning of the month? If their health benefits are covered through the end of the month and we take two benefit deductions to cover the entire month, should we do the same for HSA EE contributions? 

Well they probably wouldn't have two payrolls if they are leaving at the beginning of the month.  But I suppose they might if they had some additional payment stream post-termination.  In any case, I think any consistent employer approach here would be fine.

• Here's some more thoughts on the issue: https://www.newfront.com/blog/final-paycheck-issues-2