Do Statutory Employees who get a W-2 count as employees for auto enrollment purposes

[Will.I.Am]

I have a client who pays people who could be classified as independent contractors as statutory employees and issues them a W-2. Do these employees count towards the limit of determining if a plan sponsor has to do auto enrollment or not?

[RatherBeGolfing]

20 minutes ago, Will.I.Am said:

I have a client who pays people who could be classified as independent contractors as statutory employees and issues them a W-2. Do these employees count towards the limit of determining if a plan sponsor has to do auto enrollment or not?

If they are employees, they count.

[Peter Gulia]

The small-business exception provides: “[Internal Revenue Code § 414A](a) shall not apply to any qualified cash or deferred arrangement . . . earlier than the date that is 1 year after the close of the first taxable year with respect to which the employer maintaining the plan normally employed more than 10 employees.” I.R.C. (26 U.S.C.) § 414A(c)(4)(B).

Some might interpret that sentence’s use of the word “employee” to include nonemployees classified as statutory employees if those workers are not excluded from a § 410(b) count of which employees, leased employees, and self-employed individuals are treated as employees.

Yet, there is a further element about whether an employer (or a service recipient treated as an employer) “normally employed” those workers. That phrase might be imprecise or ambiguous.

This is not advice to anyone.

BenefitsLink neighbors, has the IRS published guidance on this?

[Lou S.]

It might be addressed in your plan document whether a Statutory Employee is considered and employee or independent contractor for purposes of the plan. The Plan's eligibility might also address whether or not Statutory Employees are eligible for the Plan or not, assuming they meet any other Plan eligibility conditions or if they are specifically excluded.

Though typically I think when statutory employees get covered under employer plans there is much higher likelihood that they are then Common Law Employees.

You can always run the question by counsel if you are not sure or the document is unclear.