Salaried & Equivalency for Hours

[Craig Schiller]

Participant is a salaried employee whose regular work schedule is 35 hours per week. The person is paid for 35 hours per week, with no overtime.

Participant terminated on June 14th. Hours at 35 x weeks is under the 1,000 for vesting. If equivalency has to be used, at 45 hours per week, person has 1,000 hours.

Since hours are not actually tracked, is it required to use equivalency?

Plan uses standard definitions:

(1): The term Hour of Service means (1) each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer or an Affiliated Employer

(2): Use of Equivalencies. Notwithstanding paragraph (a), the Administrator may elect for all Employees or for one or more different classifications of Employees

Thanks for your help with this.

[ETA Consulting LLC]

It would appear as if the Administrator would make such election in the document. I would read further to attempt to ascertain whether or not the equivalency is used for any group of employees. The provision you included appears to be definitional; I hope that's a word You're looking for the provision on how this particular plan will operate with respect to counting hours.

Good Luck!

[QDROphile]

Expect error. Attention to this matter is rare until there is a real question. The plan terms and plan operation problaby will not match or there will be no record of application of plan terms. The regulations speak to circumstances in which the employer does not actually record hours.

[Craig Schiller]

I found more information since the post and still don't know the answer here.

Assume an EE is hired to work 40 hours per week. And when the EE terminated, they were paid to that date at exactly their salaried rate with no overtime pay.

The ERISA reg on hours only states that an Hour of Service is an hour paid, or entitled to payment. If a person is paid their normal salary until June 15th, then they are only being PAID for 40 hours of service, notwithstanding that the employer does not track hours. OTOH - in The ERISA Outline, Sal Tripodi discusses this, and says that in this type of circumstance, the hours used must be reasonable, and one may need to look at other things such as the employment contract as to hours covered - another words it is not black and white. And he referred to a Q&A from the American Bar with the IRS in 2003, where it was quite simple what the IRS said. If hours are not tracked for a salaried person you must use the equivalency. Nothing in the reg leads to that certainty, but that is what the IRS said.

How are others handling this? Are people generally counting 45 hours a week for a salaried employee if they are paid that flat salary every payroll period, with no overtime. Or are they counting 40 hours? Or does anyone have any more information on this issue?

[ForksnKnives]

I believe the regs require equivalency to count 45 hours per week or 190 hours per month.

If you do not have records of how many hours were actually worked then it's difficult to determine how you would know whether the employee only worked 35 hours each week or was only entitled to 35 hours of pay each week. If you can prove as much then it's questionable whether your employees are exempt salaried employees and that opens up other problems for the company. If you don't have records then it sounds like the plan administrator is making benefit determinations absent facts. That sounds like an arbitrary and capricious decision, especially if it is the first time the plan administrator has counted hours of service for a salaried employee.