Short Serviced Employee

[Dennis Povloski]

Calendar year plan has 1 hour wait for eligibility (entry on the next 1/1 or 7/1). Profit Sharing only requires that a participant is employed on the last day of the year.

I get a payroll report from the client and there are several employees with a very small number of hours during the year. For example, date of hire 4/15/2009 and total hours = 16. Another has DOH = 2/3/2010 and total hours = 8.17. No date of termination for either.

The office manager says that these people are like independent contractors, and just work when they are needed, and that they shouldn't be eligible for the plan. Since they're W-2 employees, I don't think independent contractor really fits. Probably something more like temp workers.

There is no termination date in the payroll records, so from my reading, they should enter the plan and get a profit sharing contribution. That would get them something like a $5 profit sharing contribution.

Even though there's no official term date, could it be argued that they are really terminated after they work their hours and are rehired the next time they work so that they are not included?

[MARYMM]

Calendar year plan has 1 hour wait for eligibility (entry on the next 1/1 or 7/1). Profit Sharing only requires that a participant is employed on the last day of the year.

I get a payroll report from the client and there are several employees with a very small number of hours during the year. For example, date of hire 4/15/2009 and total hours = 16. Another has DOH = 2/3/2010 and total hours = 8.17. No date of termination for either.

The office manager says that these people are like independent contractors, and just work when they are needed, and that they shouldn't be eligible for the plan. Since they're W-2 employees, I don't think independent contractor really fits. Probably something more like temp workers.

There is no termination date in the payroll records, so from my reading, they should enter the plan and get a profit sharing contribution. That would get them something like a $5 profit sharing contribution.

Even though there's no official term date, could it be argued that they are really terminated after they work their hours and are rehired the next time they work so that they are not included?

They sound like what we call "per diem" employees in the healthcare field. They are called in as needed based on our staffing needs.

They don't get benefits and they are excluded from our 401(k) Plan (which has an employer match) as of 1/1/11. They can defer in our 403(b), though. It used to be a challenge to track their eligibilty each year for the k plan since some of them didn't hit the 1,000 hours of service in a year threshhold for many years.

[12AX7]

Going forward, why not amend the plan to allow full-time employees to have immediate entry and part-time employees must complete a year of service. Since participation is not a protected right in the plan, you can knock these few employees out in 2011.

[Dennis Povloski]

Going forward, why not amend the plan to allow full-time employees to have immediate entry and part-time employees must complete a year of service. Since participation is not a protected right in the plan, you can knock these few employees out in 2011.

Are you saying that even though these people have met the current eligibility requirements and entered the plan, that if I change the eligibility requirements, I can kick them out? Or are you saying the change would take place prospectively and only apply to new short serviced people?

[12AX7]

I say that an amendment made currently can actually take these participants out of current participation status until they satisfy the new requirements. Any benefits that may have accrued up until the time of the amendment cannot be retroactively reduced. Any new short-service employees starting work after the effective date of the amendment will be subject to the new rules.

[Dennis Povloski]

Got it. Thanks!