Jump to content

Spouse's Unpaid Service


austin3515
 Share

Recommended Posts

Wife works for husband Docotor doing books for 10+ years, but never was on the payroll. Wife's involvement is clearly documented by workflow, emails, etc., so the existence of her service would be verifiable on audit. Well, now the plan is safe ahrbor, so the wife now wants to get paid so she can defer the max as well.

Plan requires 1 Year of Service.

Option 1: Wife is eligible from day of compensation because we can count all of her pre-pay check service. This is based on the fact that she was "entitled to compenation for services rendered" even though none was actually paid.

Option 2: Because the wife never actually received any compensation, and most hours of service crediting rules reference "hour of service for which compensation was paid" or soemthing to that affect, wife must satisfy eligibliy treating day 1 as the first day of her paycheck, delaying her entry for at least a year.

[ignore the fact that wife should have been on the payroll all along, and probably was not to avoid the social security tax by tacking it on to the Doctor's paycheck, whcih was above the wage base - that is someone else's BIG problem - not mine! The question presented to me is solely "can she participate from day 1"].

So which option is it? Option 1 or Option 2?

Austin Powers, CPA, QPA, ERPA

Link to comment
Share on other sites

  • Replies 55
  • Created
  • Last Reply

Top Posters In This Topic

I'm not knowledgeable in minimum wage laws, but it seems to me that I heard before that Federal minimum wage laws (and many states for that matter) don't apply to spouses. If that's the case, then she's been "eligible" right along, but just has had zero compensation. So it wouldn't be a problem to have her start immediately - in fact, it would be required absent a valid exclusion.

Link to comment
Share on other sites

I'm not knowledgeable in minimum wage laws, but it seems to me that I heard before that Federal minimum wage laws (and many states for that matter) don't apply to spouses. If that's the case, then she's been "eligible" right along, but just has had zero compensation. So it wouldn't be a problem to have her start immediately - in fact, it would be required absent a valid exclusion.

I think that's correct.

Ed Snyder

Link to comment
Share on other sites

One-time amendment to use a more generous definition of eligibilty?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

Link to comment
Share on other sites

Austin - as I said, I'm not knowledgeable in this arena. A quick internet search confirms that! It seems pretty clear that on a state level, many states don't require minimum wage for spouses. But I'm not at all sure that generally applies at the federal level, particularly if FLSA applies. Sorry I can't give you a better anser - hopefully someone else here will know.

Link to comment
Share on other sites

And Austin understands that an amendment would be VERY discriminatory in effect and is not an option.
Maybe. No information in above posts about NHCEs.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

Link to comment
Share on other sites

Have you checked your document's definition of "eligible employee"? I think that may help here - but may not be the answer you are looking for. Ours (Corbel) states, "an individual shall not be an Eligible Employee if such individual is not reported on the payroll records of the Employer as a common law employee. In particular, it is expressly intended that individuals not treated as common law employees by the Employer on its payroll records and out-sourced workers, are not Eligible Employees and are excluded from Plan participation......" It does reference their non-standardized document, so this language may not apply in all Corbel document cases. You may want to ask your document provider directly on this.

Link to comment
Share on other sites

FLSA does not apply if the employer qualifies for what's generally referred to as the "family business exception" under the "enterprise" definition of the Act.

http://www.dol.gov/whd/regs/statutes/FairLaborStandAct.pdf

Any establishment that has as its only regular employees the owner thereof or the parent, spouse, child, or other member of the immediate family of such owner shall not be considered to be an enterprise engaged in commerce or in the production of goods for commerce or a part of such an enterprise.

So that begs the question of what other employees does the company have?

As Belgrath said above, if FLSA does not apply then the spouse would not be subject to the minimum wage law.

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

Link to comment
Share on other sites

It's not just the owner and the spouse, there are other employees.

And I like what someone was posting about the Eligible Employee definition (we are on the same document) however, it does not seem to reference what you would do in the event that such a person is ever hired.

How could this not be addressed somewher?? Am I the only who comes across this issue with some frequency?

Austin Powers, CPA, QPA, ERPA

Link to comment
Share on other sites

It's not just the owner and the spouse, there are other employees.

And I like what someone was posting about the Eligible Employee definition (we are on the same document) however, it does not seem to reference what you would do in the event that such a person is ever hired.

How could this not be addressed somewher?? Am I the only who comes across this issue with some frequency?

I think that the spouse would become an eligible employee, effective as of the date he/she first is on the payroll. And would then have to satisfy the eligibility requirements from there.

Link to comment
Share on other sites

Please elaborate... This sounds interesting even though I have no idea what you mean!

Independent contractor vs employee can be a big deal. Most famously, Microsoft got sued by a bunch of contractors who were denied benefits. Of course it's a bit messier since you're dealing w/ a spouse who was paid nothing for her services. But if your goal is to include the spouse immediately, it might serve your purpose.

http://www.irs.gov/businesses/small/articl...d=99921,00.html

http://www.irs.gov/pub/irs-utl/emporind.pdf

Oh, and I assume since it's a doctor that this is some sort of corporation and not a sole proprietorship?

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

Link to comment
Share on other sites

It's not just the owner and the spouse, there are other employees.

And I like what someone was posting about the Eligible Employee definition (we are on the same document) however, it does not seem to reference what you would do in the event that such a person is ever hired.

How could this not be addressed somewher?? Am I the only who comes across this issue with some frequency?

For what it is worth you are correct. You would think this is addressed some place. But it isn't and this issue seems to come up alot.

What I have and most of the people I have worked with over the years have solved this issue is look to other parts of employement law/practice. For example, did this Dr. ever set up his wife with the other reqiured or optional hallmarks of an employee. For example, do the other employees including the Dr. all have benefits given to all employees? If she did not have them that would seem to indicate they really didn't treat the wife as an employee. I will admit most of the time it isn't a spouse of an owner this question comes up so some of this is less relevant.

Honestly, it doesn't sound like they ever treated here as an employee and now you are looking for a way to rationalize doing so. The problem is if you are wrong you just let a HCE into the plan too early. On the other hand if you recommend to keep her out for a year and you are wrong you have keep a HCE out of the plan too long. The bigger risk is in letting this person in too early, not too late. The IRS is going to challenge too early, not too late.

Link to comment
Share on other sites

We've had this come up several times. I've always considered it addressed by the plan's definition of hour of service. Our plans have always said something like this:

Performance of duties. Hours of Service include each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer. These hours will be credited to the Employee for the computation period in which the duties are performed.

If they work and don't get paid, no hours credit. That makes it pretty hard to get credited with the 1,000 hours usually needed to become a participant.

Link to comment
Share on other sites

Much as I hate to say it, I agree with Kevin C (nothing personal, just not the answer I want). If you look at my OP, I wasn;t sure if the "entitled to payment" language could be exploited in our favor. But of course I also agree with ESOP guy - discrminiation is definitely going to be on the IRS' agenda if this became reviewed.

Austin Powers, CPA, QPA, ERPA

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share


×
×
  • Create New...