The 24-Employee Landscaper: Who Must Be Covered, and At What Cost?
Kimo runs a 24-employee landscaping company in Hilo. His newest worker, Maria, was hired six weeks ago, works 24 hours a week, and earns $3,200 a month. Kimo offers a medical plan with an employee-only premium of $520 a month, and he tells Maria her share is $110 a month, to be deducted from her check. Maria says she cannot afford it and asks to be paid the $110 in cash instead. A second worker, Tomas, has been with the company two years but works only 18 hours a week. Kimo's brother-in-law, who holds no insurance license, has offered to "shop the plan around" for $50 per employee. Kimo wants to know what the law actually requires before he changes anything.
1. Under the Hawaii Prepaid Health Care Act, is Kimo required to provide coverage to Maria? To Tomas? Explain the tests you applied.
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Employer test. The Prepaid Health Care Act (PHCA) reaches employers with 20 or more employees in Hawaii. Kimo has 24, so he is a covered employer.
Employee test. An employee must be covered if he or she works at least 20 hours per week for 4 consecutive weeks.
- Maria: 24 hours per week, six weeks of service. She meets both prongs, including the four-week threshold. Kimo must cover her; the Act sets the maximum waiting period, so he cannot impose a longer one.
- Tomas: 18 hours per week. He is below the 20-hour floor and is not a covered employee now - but the obligation attaches as soon as he averages 20+ hours for four consecutive weeks, so Kimo should monitor his schedule rather than treat him as permanently exempt.
Waiver point. A covered employee may file a written waiver only if he or she actually has other coverage (for example, a spouse's plan). "I can't afford it" is not a ground for a waiver, and Kimo cannot convert the obligation into a voluntary benefit.
2. What is the most Kimo may deduct from Maria's paycheck, and is his cash-in-lieu offer lawful?
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Statutory cap on the employee's share: 1.5% of gross wages.
- 1.5% × $3,200 = $48.00 per month. That is the ceiling, not a target.
- The $110 deduction is $62 over the cap and is therefore unlawful. Kimo must reduce the deduction to $48 and absorb the remaining $472 of the $520 premium.
- The cap is a maximum; an employer may lawfully pay the entire premium.
Cash in lieu: No. Paying Maria $110 instead of enrolling her does not satisfy the Act. The employer's obligation is to provide prepaid health care coverage, and the employee's contribution is a limited cost-share, not wages. A cash payment leaves Maria uninsured and leaves Kimo exposed to a wage-standards action plus penalties.
Dependents: PHCA requires coverage of the employee. If Maria elects family coverage, the extra premium for that coverage is her responsibility - but that does not expand the 1.5% ceiling on her own coverage.
3. Kimo asks whether the Insurance Division is the agency that will "come after" him, and whether he can hire his brother-in-law. How do you answer?
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Enforcement agency. PHCA is administered by the Hawaii Department of Labor and Industrial Relations (Wage Standards Division), not the Insurance Division. Complaints, audits, and penalties under the Act run through DLIR. The Insurance Division regulates the insurer and the licensed producer, not the employer's compliance with the prepaid care mandate - a common client confusion worth correcting.
The brother-in-law. Paying an unlicensed person to solicit, negotiate, or place insurance is prohibited. A $50-per-head arrangement in which he discusses plan options and steers employees is unlicensed activity, and sharing compensation with him jeopardizes Kimo and any licensed producer involved.
- Legitimate path: work with a licensed Hawaii producer appointed by the carrier; any fee for a pure referral (no discussion of policy terms) is a narrow exception, not a business model.
- Practical advice to Kimo: fix the contribution immediately, put Maria on the plan, and route the shopping request to a licensed producer.