Employee paid per mile

[Monica Barnard]

401k Plan using age 21 and 1 YOS (1000 hours). Truck driver is paid 25 cents per mile, reported on W-2. How the heck do we figure his hours out?

[GMK]

You can maybe estimate it as follows:

For example,

if he works 1000 hours and 85% of that time he is driving,

and his overall average speed is 50 miles an hour when he's driving,

then at 25 cents a mile, he would make

1000 hrs * 0.85 * 50 mph * $0.25 = $10,625.

If he made more than this, then he had more than 1000 hours, if the other assumptions apply.

So, plug in your estimates of the percent of his work hours he's driving and his average speed while driving (big difference city and highway), and you'll have a first order estimate.

A quicker calculation would be something like:

1000 hrs * 90 mpg * $0.25 = $22,500

so if he made more than about $22,500, he was either driving over 90 mph all the time or had more than 1000 hours.

[Bill Presson]

Monica, can't find it now, but I'm pretty sure the driver would be credited with hours on an equivalency basis (1 day = 10 hours, etc).

Not sure if it's a document issue or a regulation issue, but that's my recollection. If I get a chance, I'll try to find something definitive before tomorrow.

[QDROphile]

The plan should specify how hours are to be computed. If this is the first employee of this type, the plan may have to be amended to provide the answer. One of the hour equivalency methods should work; other approaches may be possible. Expect the method to be more generous than somone's notion of actual hours.

[ESOP Guy]

I agree with QDROphile. The plan document needs to define how the hours are going to be computed. There are some DOL equivalency methods in the regs. They should be incorporated into the plan document.

Anything else I think puts you at risk.

[K2retire]

We have a client with a similar quandary. Their tour bus drivers are paid by the job. After a number of discussions about the fact that they cannot use a plan hours criteria that they are unwilling to track, they have chosen to make an assumption that the job is paid at a rate of $10 per hour. It's not a perfect solution, but it was the best they could do.

[QDROphile]

It is not the best they could do and it is inadequate for compliance.

[ESOP Guy]

Monica and K2 a simple question. How do your client's know they are in compliance with the minimum wage laws if they have no idea how many hours these people are working?

I admit I am no expert on this part of the law but I am also not aware of any exception that says paying someone by the mile or by the job exempts them from making sure they are paying at least the minimum wage.

Personal story here to bore you: Back in the '80s I worked my way through college one summer by painting houses. My partner and I split 45% of the gross revenue of the job and the owner got the other 55%. Owner paid the expenses. But he made us report our hours of every job so if the state of IL or the DOL audited him he could show we made at least the minimum wage.

[Peter Gulia]

One imagines that a plan's document doesn't state any approximation method beyond the equivalencies and other methods stated in the 2530.200b regulations (because an attempt to provide something else likely wouldn't have obtained an Internal Revenue Service determination).

If so, doesn't inventing an approximation method mean that at least one fiduciary fails to administer the plan "in accordance with the documents and instruments governing the plan[.]"?

[GMK]

For reference:

http://www.law.cornell.edu/cfr/text/29/2530.200b-3

[Bill Presson]

The answer I got back from Ft. William is:

"The plan needs to be amended. Then, you would select an hours equivalency in Questions D.2a/b, D.14a/b and E.2a/b.
In the second question for each, you can apply only to people who do not have specific hours."

Maybe this will help those with other document providers. This would allow continuing to count actual hours for those that work hourly and apply equivalencies to the few that have to have it.

[K2retire]

It is not the best they could do and it is inadequate for compliance.

Monica and K2 a simple question. How do your client's know they are in compliance with the minimum wage laws if they have no idea how many hours these people are working?

I admit I am no expert on this part of the law but I am also not aware of any exception that says paying someone by the mile or by the job exempts them from making sure they are paying at least the minimum wage.

Personal story here to bore you: Back in the '80s I worked my way through college one summer by painting houses. My partner and I split 45% of the gross revenue of the job and the owner got the other 55%. Owner paid the expenses. But he made us report our hours of every job so if the state of IL or the DOL audited him he could show we made at least the minimum wage.

I agree with both of these issues. However, the client doesn't see it as a problem. Until they do, my hands are tied.

They also don't feel the need to be particularly consistent in the timeliness of their deferral deposits. Despite 4 of the last 5 5500 filings reporting late deposits, they have never received any correspondence from the DOL. Because I keep warning them about that, I am now perceived as Chicken Little and they are not interested in hearing my suggestions about the hours issue.

[Belgarath]

I have an entirely different approach, and perhaps this is impossible if you want to keep the client on your books...but I would make the client CERTIFY on the census 1,000 hour, 500-1,000 hours, or less than 500 hours. Exact number not needed. Put the onus on them, where it belongs.

If a client is unwilling to make that decision and certify data, I'd politely show them the door. I certainly wouldn't make myself crazy trying to use an estimate that may or may not be accurate.

I caveat this by freely admitting that there may be other intricacies in your particular document/administration/situation that would make my approach impractical or impossible.