Excluded or Not?

[Jilliandiz]

Employer has 90% of their payroll considered "contracted employees" NOT Independent Contractors since they are on the payroll.

Can they establish a 401k Safe Harbor Pla, where the only employees eligible are all the Administrative and Internal Operations employees, can they exclude "contracted employees" eventhough they are on the company payroll?

[Belgarath]

That's always the million dollar question. This is determination that simply cannot be made on these boards. I suggest you refer to Pub. 15-A, and the client's tax/legal counsel.

http://www.irs.ustreas.gov/pub/irs-pdf/p15a.pdf

Quick edit - sorry, I had a call coming in and had to hurry the response a bit too much. As you'll see from the publication, the proper determination is so dependent upon specific facts and circumstances that it is really difficult to give good advice without an extremely detailed knowledge of the situation - and such detail can rarely be properly conveyed on these message boards.

[Jilliandiz]

What if they were all Hourly employees as well, I believe they can be excluded as "hourly employees"?

Any thoughts?

[Belgarath]

Maybe. When you get down to exclusions, you are of course talking about "employees." If they are not employees, they aren't covered regardless. So let's assume they are "employees." It is possible to use various exclusions, but again, this is so dependent upon facts and circumstances, your plan document, required coverage testing under IRC 410(b), etc., that it seems unlikely you will get a solid answer here.

I guess I'll just say that yes, within limits, it is possible to exclude certain classes of employees. Whether it will be possible in your situation will require that you do some research.

Hope this helps.

[Kimberly S]

Of course, if you are excluding 90% of the work force, you're not likely to pass coverage unless a significant number of the excluded employees are HCEs.