Guest swiantj Posted August 9, 2001 Posted August 9, 2001 What's your take on ees who don't draw comp from the employer? Include in testing & IRS counts or not?
Guest GMedley Posted August 9, 2001 Posted August 9, 2001 I don't count them, generally. If they have no comp, how can they be eligible to contribute anything per an ADP test? I have no legal reference for this. But as a math major, I know you can't be dividing by zero! I'd be curious how others handle it.
rcline46 Posted August 10, 2001 Posted August 10, 2001 IRS at the ASPA conference said not to count. Simple reason is they received no compensation! And since compensation is based on services performed, then no services performed, therefore not an employee.
GBurns Posted August 10, 2001 Posted August 10, 2001 How can an employee not get comp for services rendered? How do you cover them for state unemployment, workers comp.and general liability? George D. Burns Cost Reduction Strategies Burns and Associates, Inc www.costreductionstrategies.com(under construction) www.employeebenefitsstrategies.com(under construction)
Jon Chambers Posted August 10, 2001 Posted August 10, 2001 They could be on an unpaid leave of absence--still an employee, not rendering services, consequently, not paid. Jon C. Chambers Schultz Collins Lawson Chambers, Inc. Investment Consultants
FJR Posted August 10, 2001 Posted August 10, 2001 They could also be an owner who is freeing up some cash flow. I have some instances that the owner does not draw and has other sources to keep him alive.
GBurns Posted August 10, 2001 Posted August 10, 2001 Jon, Read my post, it required the rendering of services. In any case this discussion is related to normal situations not an occasional circumstances that is clearly covered by law. FJR, An owner is not an employee. These are 2 different things. If an "owner" happens to ALSO be an employee there has to be compensation for services. Although you might have seen instances where the owner who is also an employee does not "draw" that does not mean that he is compliant or that he will continue to get away with it. Simple tax research will provide you with numerous cases where the IRS and the Courts recharacterized dividends and profit draws to be salary and charged large penalties for having misreported and under withheld and in many cases levied not only civil Penalties but also Criminal Fraud penalties. George D. Burns Cost Reduction Strategies Burns and Associates, Inc www.costreductionstrategies.com(under construction) www.employeebenefitsstrategies.com(under construction)
david rigby Posted August 10, 2001 Posted August 10, 2001 Interesting discussion. No attorney I, but might all (or none) of these "discussions" be correct? Does it depend on the type of corporation? That is, if it is a Sub-S corp., can the owner/employee legitimately render services and also not take direct compensation? And if so, is that relevant to the original question? 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.
GBurns Posted August 10, 2001 Posted August 10, 2001 It does not matter if it is a C, an S (especially a more thanor a partnership. It is curious that this is a 401(k) Board and a 401(k) plan is for the exclusive benefit of employees and former employees. IRC 401 and Treas. Regs. 1.401 have participation restrictions etc. Treas. Regs 1.401(k)-1(g)(5) and (6) define "Employee" and "Employer" respectively. Other definitions of employer and "wages" are provided at length in Treas regs 31.3401 and 3121. In general, if you provide service as an employee you have to be compensated in some form. To contribute to a 401(k) you must be eligible and have compensation. An owner has no compensation as an employee and is not an employee therefore cannot contribute or participate in a 401(k). So how did the get into the testing etc? George D. Burns Cost Reduction Strategies Burns and Associates, Inc www.costreductionstrategies.com(under construction) www.employeebenefitsstrategies.com(under construction)
Recommended Posts
Archived
This topic is now archived and is closed to further replies.