403(b) Eligibility Question

[mlp0816]

I have a large 403(b) client (with ERISA coverage) that is the fiscal sponsor for an additional small not for profit organization. In the Past, the small not for profit organization has employed a couple of people on a short term basis and paid them as 1099 payees. The small not for profit now wants to hire 2 full time employees and has asked my client if they could add them to their payroll, and then reimburse them for the costs of payroll, taxes, and healthcare.

These individuals would not be employees of my clients 403(b) organization, but they would be on their payroll and I could see them being perceived as employees by ERISA/IRS. Would they then be eligible for my client’s 403b? Or is there a way to set them up as a certain class of employee so that they would be disqualified? And same for the discretionary non-elective contribution? They may or may not stay on the Payroll for a year or more. Any help on this one would be appreciative