PEO vs leased employees

[52626]

Employer A has set up an office in a different state. Due to payroll tax issues, they will use a PEO to handle payroll for the employees in the different state.

The PEO issues the paychecks each pay period. The W-2 will show the PEO's name and EIN

The 401(k) plan excludes Leased Employees.

Am I correct in saying the employees covered under the PEO are NOT leased employees and therefore are eligible to join the plan after meeting the eligibility requirement?

If they are eligible to participant, what changes need to be made to the document to show these employees are covered?

The bundled platform, told the client to ask their attorney for guidance with PEO issue.. The client is an attorney and asked us their Investment Manager!!!

Seems to me, employees under the PEO belong to the employer and therefore since the employer is not using the PEO's retirement plan, they are covered under the existing plan.

Thoughts

Thanks

[hr for me]

They seem to meet the IRS leased employee definitions due to the first prong of the definition. So right now I would say they aren't eligible without changing that exclusion in your plan. Many employers want to exclude them and actually make the mistake going the other way.

I will stay that "seems to me" with PEOs is not a good idea. You need to understand the agreement and they can be written in any number of ways. But in the end it seems like the employer still liable for any liability. (Sorry not a great big fan of PEOs personally) I would definitely find an attorney who is familiar with PEO/co-employment issues other than the PEO in-house counsel to read over the contract/agreement.

eta: if it is only payroll/tax issues they are looking at (and not needing all benefits) a PEO might be overkill.

[shERPA]

I agree with @52626, most likely these are common law employees of the employer, therefore they are not "leased employees" because leased employees first and foremost are not employees of the recipient. More info here:

http://benefitslink.com/m/qa.cgi?db=qa_who_is_employer&n=251