Excluding "Seasonal Employees"

[austin3515]

I was reading through "Part-Time Employees Revisited"

https://www.irs.gov/pub/irs-tege/qab_021406.pdf

The include Seasonal Employees along with part-timers, but they make it (I think) pretty clear that what they don't like is when part-time or seasonal employees are defined as employees who work less than X hours in a particular period.

But what if I have a group of employees who are being excluded solely because they work during the summer months exclusively without regard to how many hours a week they work.

I know I can exclude them; the real question is does the document (and operations) need to make them eligible if they hit 1,000 hours in 12 months (i.e. if they meet max eligibility under 410a)?

[Belgarath]

I'm not sure that's quite true. It is ok to have an excluded class such as part time/temporary/seasonal whose regularly scheduled service is less than 1,000 hours. BUT, the document must have "fail safe" language such that if any of these people complete a
Year of Service, then they are no longer in this excluded class.

There was a QAB on this subject back in 2006 - can't remember the number offhand.

[austin3515]

HEre is my rebuttal:  If I indicate that employees whose employment is exlcusively between June and September are excluded, does that reference the amount of their service?

What if I wanted to exclude 3rd shift employees?  Can I do that?  Why is that any different?

Also, my seasonal employee exclusion does not reference amount of service in the definition of Seasonal Employee - a reference to hours based on the site I provided certainly appears to be a pre-requisite for a problem.

[Belgarath]

FWIW...

Excluding 3rd shift employees shouldn't be, IMHO, a problem. They could be employed the entire year, and the exclusion isn't based on hours, either directly or indirectly, but on a bona fide employment classification

For the "4 month" employees, I think that's a classification based indirectly on service, and you'd need the "fail safe" language.

[ETA Consulting LLC]

When you have a class that is, itself, defined by a customary work schedule, then that becomes your issue.  This is class exclusion is directly and indirectly, meaning that if all your janitors are part-timer, then you cannot exclude the janitors.  That would effectively exclude part-timers by attempting to disguise them as a legitimate business class.

So, whatever you decide to do should be weighed against this standard.  I wouldn't encourage a client to try excluding employees when the class is defined (primarily) by any work schedule.  But, that's just a reflection of the levels of risk that I would be comfortable with.

Good Luck!

[austin3515]

ETA, lots of plans exclude "per diem employees" - so in you're opinion that would require the failsafe language?

Almost exclusively they would be part-time employees.

[ETA Consulting LLC]

True.  The key is that the entire exclusion (which basically says you will never be covered by this plan under an circumstance) is not based on the work being done, but by the work schedule.  The position is that you're not excluding them outright, but making them meet a different standard.  That's where the fail-safe comes in.

Otherwise, your position would be that you have three janitors performing the same function.  One works first shift, another works second shift, and the other works third shift.  Your draft the plan to exclude 2nd and third shift employees.  So, you are excluding two employees who perform the exact duties and earn the exact pay, but their only difference is their work schedule.  I would see an issue with that.  Hey, the IRS may not, but I wouldn't advise it.  I have the issue that the group, itself, is defined by a work schedule as opposed to a business class (or job function).  That's how I've always understood the IRS's position.  It 'may' be time for me to revisit it, but that's my understanding.

Good Luck

[austin3515]

Quote

So, you are excluding two employees who perform the exact duties and earn the exact pay, but their only difference is their work schedule.  I would see an issue with that. 

ETA - so a company has 2 factories making the same widgets, one in Texas and one in Wyoming.  You would advise against excluding Texas from Wyoming's plan (assume Texas has no plan)?

What time of year they work is NOT related to how MUCH they work.  This is way frustrating...  I know there was a similar conversation recently about interns now that I think about it...

[Peter Gulia]

How does an adoption-agreement form that goes with a volume-submitter document handle these questions?

[austin3515]

Good question - see below, and note again that it does not pull in all seasonal employees.  It is forcing to put an hours of service requirement in.  I don't have an hours threshold in my situation, so my "thought" is I can use the "other" field and just enter "Employees whose employment begins in June and ends in September." or something like that.

Part-time/temporary/seasonal Employees. A part-time, temporary or seasonal Employee is an Employee whose regularly scheduled service is less than ________Hours of Service in the relevant eligibility computation period (as defined in Plan Section 1.88). However, if any such excluded Employee actually completes a Year of Service, then such Employee will no longer be part of this excluded class.

[Kevin C]

I think you would still have a problem with that.

Quote

1.410(a)-3(e)(2) Example (3). A plan which requires 1 year of service as a condition of participation also excludes a part-time or seasonal employee if his customary employment is for not more than 20 hours per week or 5 months in any plan year. The plan does not qualify because the provision could result in the exclusion by reason of a minimum service requirement of an employee who has completed a year of service. The plan would not qualify even though after excluding all such employees, the plan satisfied the coverage requirements of section 410(b).

Notice the "or" before the phrase 5 months in any plan year.  What you are wanting to do would have the same effect as the example's exclusion of those who do not work more than 5 months in any plan year. You would need the 21 & 1 year failsafe to keep from disqualifying the plan.

If they work 40 hours a week for 4 months, they would be around 700 hours each year. Would any of these people ever have 1,000 hours in a 12 month period?  I'm not understanding your desire to avoid the failsafe. It seems the failsafe would be unlikely to bring into the plan any of those you want to exclude. 

[austin3515]

Kevin C, THANKS!!  The "smoking gun" as it were!

[BeckyMiller]

I agree - the term "seasonal" refers to their period of work.  However, if you were excluding all "agricultural labor," for example, they might be seasonal employees but the basis for their exclusion is a job category that doesn't refer to their period of employment.