As a business owner, you probably pride yourself on treating all your employees fairly. You offer the same health insurance to everyone, the same retirement match, the same PTO policy. On the surface, it looks equitable—everyone gets the same deal, right? But here’s the uncomfortable truth: offering identical benefits to all employees doesn’t guarantee equal treatment. In fact, it can sometimes perpetuate or even create disadvantages for protected classes of workers.
This isn’t about political correctness or performative diversity initiatives. This is about understanding how seemingly neutral benefit designs can have disparate impacts on different groups of employees—and how those impacts can expose your company to legal risk while also undermining your ability to attract and retain talented workers from diverse backgrounds.
The Illusion of Neutrality
Let’s start with a basic example that illustrates the problem. Your company offers a robust health insurance plan with a $3,000 deductible and an HSA contribution of $1,000. Seems fair—everyone gets the same deductible and the same employer contribution. But consider how this plays out for different employees:
A healthy 28-year-old male employee might rarely use healthcare services, easily meeting the deductible in a year where he has significant medical needs, and benefiting from the tax advantages of the HSA over time. Meanwhile, a 45-year-old female employee managing a chronic condition might hit that deductible in February and face substantial out-of-pocket costs throughout the year. An employee undergoing fertility treatments might burn through the deductible immediately and face tens of thousands in additional costs.
The benefit design is technically identical for everyone, but the real-world impact varies dramatically based on characteristics that often correlate with protected class status—age, sex, and disability status in this case.
FSA and HRA Design Pitfalls
The complexity increases when you layer in additional benefit offerings like Flexible Spending Accounts or Health Reimbursement Arrangements. Many business owners work with flexible spending account vendors to implement these programs without fully considering how the design choices might create unintended barriers for certain groups of employees.
Take the standard FSA, which requires employees to predict their medical expenses for the upcoming year and commit to pre-tax contributions. This is a use-it-or-lose-it proposition—you forfeit unspent funds at year end (with some limited exceptions for rollover or grace periods). For employees with predictable, ongoing medical needs, this can be a valuable tax benefit. But for others, it’s a gamble.
Lower-income employees, who are disproportionately people of color, may not be able to afford to set aside money that they might lose if they don’t use it. They’re living paycheck to paycheck and can’t risk having funds locked away and potentially forfeited. Meanwhile, higher-income employees can comfortably max out their FSA contributions, knowing that even if they don’t use all of it, the tax savings alone make it worthwhile and the potential loss doesn’t materially affect their finances.
The result? Your FSA program primarily benefits your higher-paid employees, and if your higher-paid employees are predominantly white and male while your lower-paid employees are more diverse, you’ve created a benefit that disproportionately advantages one group over another.
The Fertility Coverage Gap
One of the most significant areas where “equal” benefit design creates unequal outcomes is fertility coverage. Many employer health plans either exclude fertility treatments entirely or cover only limited diagnostic services. Some employers assume this doesn’t create discrimination issues because the exclusion applies equally to all employees.
But consider the reality: fertility challenges affect women differently than men simply due to biology. Treatments like egg freezing, which many women pursue to preserve their ability to have children later in their careers, are typically not covered. IVF, which becomes more necessary as women age due to declining fertility, is often excluded or subject to severe limitations.
Same-sex couples, who by definition cannot conceive without assistance, face even more significant barriers. If your plan covers fertility treatments only after a diagnosis of infertility—which typically requires a year of unsuccessfully trying to conceive naturally—same-sex couples are automatically excluded from coverage they might desperately need.
You might think you’re being neutral by simply not covering fertility treatments for anyone, but the impact falls disproportionately on women, older employees, and LGBTQ+ individuals. That’s not neutral at all—it’s discriminatory impact even if it wasn’t discriminatory intent.
The Caregiving Burden
Here’s another area where equal benefit design misses the mark: caregiver support. Your PTO policy gives everyone the same amount of time off. Your leave policy complies with FMLA requirements. Everyone has access to the same resources.
But women, who still bear the majority of caregiving responsibilities in American society, are far more likely to need that time off for caring for children, aging parents, or sick family members. If your benefit design doesn’t account for this reality—if you’re stingy with flexibility, if you don’t offer dependent care FSAs, if you penalize people who need to work reduced schedules—you’re creating a system that disproportionately disadvantages women.
Similarly, employees who are caring for disabled family members face unique challenges. The “sandwich generation” phenomenon, where employees are simultaneously caring for both children and aging parents, affects people in their 40s and 50s—a demographic that you presumably want to retain for their experience and institutional knowledge.
The Age Factor
Age discrimination in benefits is explicitly prohibited by law, but subtle forms persist. Consider a benefits package that’s heavy on retirement savings matches but light on health coverage. For younger employees, this might seem like a great deal—they’re healthy, don’t use much healthcare, and appreciate the retirement contributions. For older employees dealing with more health issues and higher medical costs, they’d gladly trade some of that retirement match for better health coverage.
Or look at professional development benefits that favor employees early in their careers—tuition reimbursement for degree programs, for instance, versus support for continuing education or certifications that mid-career and senior employees might need. The nominal equity masks the practical disparity.
Disability Accommodation in Benefit Design
The Americans with Disabilities Act requires employers to provide reasonable accommodations for employees with disabilities. Most business owners understand this applies to physical workspace and job duties, but it extends to benefits as well.
If your benefits program requires employees to navigate complex systems, meet tight deadlines, or complete extensive paperwork, you’re potentially creating barriers for employees with certain disabilities. An employee with ADHD might struggle with the administrative requirements of managing an HSA. An employee with a visual impairment might find your benefits enrollment portal inaccessible.
These aren’t just accommodation issues—they’re benefit design failures that result in some employees being unable to access the same value from benefits as their colleagues.
The Pregnancy Penalty
Despite the Pregnancy Discrimination Act having been on the books since 1978, pregnancy-related benefit discrimination remains surprisingly common. It takes various forms: short-term disability policies that provide inadequate coverage for maternity leave, health plans with high out-of-pocket maximums that make prenatal care and delivery financially devastating, or wellness programs that penalize weight gain without exceptions for pregnancy.
More subtly, benefit designs that require continuous employment to vest in certain programs can disadvantage women who take parental leave. If your employer match vests annually and an employee takes a 12-week maternity leave that causes them to miss the vesting date by a few weeks, you’ve created a system that penalizes pregnancy.
What Actually Equal Looks Like
So what’s a business owner to do? The solution isn’t to create infinitely complex benefit structures tailored to every possible employee circumstance. That’s neither practical nor legal—you can’t treat protected classes differently in a way that singles them out for special treatment without running afoul of other discrimination laws.
Instead, the answer is to design benefits with flexibility and choice. Offer multiple health plan options so employees can select coverage that matches their needs. Provide a mix of pre-tax and post-tax savings vehicles so employees at different income levels can participate meaningfully. Include comprehensive reproductive health coverage that serves all employees regardless of sex, sexual orientation, or gender identity.
Consider offering graduated employer contributions that provide more support to lower-income employees—this is generally legal and helps level the playing field. Implement robust dependent care benefits, flexible work arrangements, and generous leave policies that give all employees the support they need when life circumstances require it.
The Business Case Beyond Compliance
Even if you’re skeptical about the legal risks or the social justice arguments, there’s a straightforward business case for benefit equity: you want to attract and retain the best talent, and the best talent increasingly comes from diverse backgrounds and has diverse needs.
Younger workers, particularly millennials and Gen Z, expect employers to demonstrate commitment to equity and inclusion through actions, not just words. Benefits are a tangible demonstration of your values. If your benefit design systematically disadvantages certain groups, talented people from those groups will notice—and they’ll choose to work elsewhere.
The war for talent is real, and companies that figure out how to create truly equitable benefit structures will have a competitive advantage. Those that continue offering “equal” benefits that produce unequal outcomes will find themselves losing ground.
Moving Forward
Review your benefits with a critical eye toward disparate impact. Ask yourself: Who benefits most from each program? Who faces barriers to participation? What can we adjust to ensure that all employees can access equivalent value from our benefits package?
Consider engaging with your employees, particularly those from underrepresented groups, to understand their experiences with your benefits. What works? What doesn’t? What would make a meaningful difference?
And work with benefits advisors who understand these issues—not just the technical and legal requirements, but the practical reality of how benefit design affects different populations. True equity requires intention and attention. Your employees deserve both.
