What to Know About Seniors on Your Payroll

According to the Bureau of Labor Statistics, the total labor force is projected to increase by 6.6% from 2016 to 2026, while the number of workers age 65 and older is predicted to rise by 57.6%. By 2026, workers age 65 and older are expected to account for 8.6% of the total labor force, up from 5.8% in 2016. And the number of people 75 and older in the labor force is expected to grow 96.5% by 2030. What does this mean for your business?

Why businesses and seniors need each other

Many small business owners are unable to fill their job openings. The NFIB reported that 43% had unfilled positions in October 2023, with the most difficulties experienced in the transportation, construction, and service sectors. Many seniors want to continue working for a variety of reasons, including concerns about their financial ability, a desire to stay active, and the ability to continue being vital.

So, it can be a win-win for companies to retain older workers or to recruit them. Columbia Mailman School of Public Health listed the 10 advantages of older workers based on lessons from New York City small businesses:

1. Older workers are skilled and experienced
2. They stay in jobs longer and take fewer days off
3. They have a strong work ethic
4. They retain a business’s knowledge and networks
5. The perceived technology gap can be overcome
6. Older workers prove that the best teams are multigenerational
7. Older workers play a critical role in training the next generation of workers
8. They provide customers with consistency and personal attention
9. Older workers attract more business
10. Older workers are part of the business brand

Don’t discriminate

Businesses need to avoid discrimination against older workers. The Age Discrimination in Employment Act specifically bars employment discrimination by a company with 20 or more employees against those age 40 and older. This means it is unlawful to fail or refuse to hire or discharge anyone, or set compensation and promotions, based on age. While federal law only applies to companies employing at least 20 employees, many states have similar laws that apply to smaller companies (e.g., 4 employees in New York; 5 employees in California; 15 employees in Florida).

There may be more subtle discrimination because of preconceptions about older workers’ abilities (called bias-driven discrimination). This can result in jokes about seniors’ appearance, inappropriate labeling as “ancient,” and ignoring (not listening) to what older workers have to say. Whether it crosses the line into age discrimination may not be clear, but it’s certainly clear that such behavior among younger workers should be quelled.

Medical coverage

Seniors age 65 and older who’ve worked long enough can obtain Medicare, whether or not still employed and regardless of whether they are collecting Social Security benefits. However, companies need to understand how Medicare dovetails with their group plans.

• Employers with 20 or more employees. They must offer coverage to workers age 65 and older and their spouses on the same terms as those for younger workers. No incentives can be offered for seniors to decline group health coverage. If seniors accept group health coverage; they can defer signing up for Medicare Parts B and D. The group plan is their primary coverage (it pays first and Medicare pays second if employees have it).
• Employers with fewer than 20 employees. They may offer coverage, but are not required to do so. If seniors accept this coverage, they still need to sign up for Medicare, which by law remains their primary coverage.

Note: Qualified small employer health reimbursement arrangements (QSEHRAs) are not traditional group health plans, but can be used to help seniors pay their Medicare premiums. Employers that contribute to Health Savings Accounts cannot do so on behalf of employees who are enrolled in Medicare, including Part A.

Retirement plan coverage

The U.S. Supreme Court saysthat private sector employers may not set a mandatory retirement age (the mandatory retirement age for pilots is an international law). So, as older workers remain on the payroll, how does the company handle retirement plans?

Employees must continue to be allowed to participate in a company plan, regardless of age. For example, this means they can make salary reduction contributions to a 401(k) plan and receive employer matching contributions to the same extent as younger workers. (Different rules apply to defined benefit (pension) plans and are not discussed here.)

Plans must make required minimum distributions (RMDs) to employees who reach the starting age. This means that in 2024, plans must commence RMDs to employees born in 1952. The IRS has more information about the starting age for RMDs.

Exception: Plans can opt to permit deferral of RMDs until retirement. But deferral cannot be used for those who own more than 5% of the business.

Conclusion

Small businesses can benefit from employing older workers. But they need to be sure they are in compliance with laws regarding the treatment of seniors in the workplace.

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