Service Credits to an employee with no wages

[flosfur]

The spouse of a 100% owner of a corp works for the corp and was taking a substantial salary for few years and has established the desirable Hi 3 average for maximum projected benefits.

If the spouse stops taking a salary (while still working), can service credits be given to the spouse for plan benefit purposes?

[david rigby]

Service is usually awarded based on being an employee, which is in turn confirmed by employment records showing actual hours worked. If the "employee" has hours worked but no compensation, is that a violation of minimum wage laws? Alternatively, might someone conclude that the hours records were not accurate?

[JAY21]

A definite "yes" in my book (service credits can continue). I think the challenge though is to find some a way to document service (wages by themselves are probably not "definitive" proof of service anyway as a spouse could be paid 100k and may not have worked 1 hour, although practically speaking wages may reduce the scrutiny of "service" somewhat). Also liberalized (reduced) hours of service requirements, or elapsed time method crediting, might help reduce the level of proof of service if it doesn't inadvertently bring in other employees. I've been through a few audits on this issue.

[Dougsbpc]

Why not pay the spouse a small salary?

I dont believe minimum wage laws apply to the owner of a business or his/her spouse.

Many spouses work for small business owners, work long hours and draw low salary, particularly in the first few years of a company. The plan should be able to count this service as long as the spouse works the required hours per the plan.

[flosfur]

If the wages for a non-owner employee (even if the employee is the spouse of the owner) are irrelevant, then what stops the owner's cousin Vinni or uncle Harry being covered by the plan, if the owner so desires?

What if they are not legally married but are living together?

[WDIK]

flosfur,

I don't think your inference is supported by the facts of this thread. The spouse (or in your scenario Vinni and Harry) is performing legitimate services for the company. The question is whether or not the spouse must take salary for the rendered services to justify benefit credit under the plan.

[flosfur]

flosfur,

.....  The question is whether or not the spouse must take salary for the rendered services to justify benefit credit under the plan.

What would be your answer (& why)?

[AndyH]

If there is some test that she must be included in, then you could have a problem. Per Jim Holland a couple of years ago at ASPA national, no compensation=not an employee=not in the test=any test. He could not have expressed that opinion clearer.

[WDIK]

What would be your answer (& why)?

I am not familiar with the context of Jim Holland's comments and how they might apply to this scenario.

Setting that aside for the moment, I think that a facts and circumstances test would be appropriate. Did the spouse actually perform services for the company? Did the spouse work enough hours/time to receive credit under the terms of the plan document? What is the basis for deciding that the spouse would not be paid a salary? Other relevant information would also be a part of the determination.