Timing of Hours for Vesting

[effingeh]

Hello!

Participant was hired on 6/30/25. Company pays bi-weekly and the first payroll in the system was 7/18/25 and for just 80 hours. As of the end of the year, this employee only showed with 960 hours in the system because the final payroll that included 12/22/25 - 12/31/25 was issued on 1/2/26 and applied itself to the 2026 hours.

Client is requesting to move the 80 hours from the 1/2/26 payroll and apply them to 2025.

Is there any rule that dictates if the hours are required to be applied in one year versus the other? While I think the hours should count for 2025 since that is when they were worked, my biggest issue with this is that the compensation earned on the 1/2/26 check counts toward 2026 and I feel like that should line up - But based on hire date and working full-time, I also feel this employee should get the vesting credit as does the client.

My only other thought is asking them what happened for the 7/4/25 payroll and why the EE didn't get 40 hours for the half-week they "worked".

Thoughts?

[John Feldt ERPA CPC QPA]

DOL regulations indicate that hours are based on the date worked (or the day for which pay was earned). Thus, hours worked in 2025 count in 2025, regardless of the payroll dates. 
 

Compensation differs and has an optional provision. Compensation is based on the date paid, unless the plan is written to use the “first few weeks” rule or “post year-end compensation” provision to pull in comp after year end and push out comp paid right after the plan year began. 

[Christine Oliver]

My understanding is that as long as you apply hours and compensation in a consistent manner, it's okay to apply hours and compensation based on pay date. For example, we consistently apply hours and compensation that cross plan years by the pay date. Having to segregate hours seems onerous. Am I mistaken?

[Paul I]

@Christine Oliver Consistency is key. 

[John Feldt ERPA CPC QPA]

As long as you follow the terms of the written plan document, sure. I could be wrong, but I think most IRS pre-approved plans specifically spell out how this must be handled by referring to the DOL regulations. You can always have a seasoned ERISA counsel review the document to provide their opinion. 

[Bri]

Isn't this one of those things, too, where the DOL's rules and IRS's might not perfectly sync in terms of leeway, too?

[Paul I]

There is only one set of hours rules and they are from the DOL.  Most pre-approved plans do not offer explicit choices about using pay date versus pay periods versus daily tracking (with the exception of using a first few weeks rule which more often than not is a ridiculous choice).

A plan administrator can decide on a policy and then apply consistently and uniformly.

[Peter Gulia]

If the employer/administrator does not count hours of service each day, and instead counts or approximates hours by a wider period, consider (among many points):

“In the case of hours of service to be credited to an employee in connection with a period of no more than 31 days which extends beyond one computation period, all such hours of service may be credited to the first computation period or the second computation period. Crediting of hours of service under this paragraph must be done consistently with respect to all employees within the same job classifications, reasonably defined.” 29 C.F.R. § 2530.200b-2(c)(4), https://www.ecfr.gov/current/title-29/part-2530/section-2530.200b-2#p-2530.200b-2(c)(4).

The rule section of which that quoted text is a subpart includes at least six admonitions that administrative-convenience rules must be “consistently applied.”

If one’s client seeks to make a service-crediting rule the administrator could apply, uniformly, to all situations that involve December and January, what rule would that be?

How confident are you that the employer/administrator’s computer system can apply that rule?

Is crediting a pay period’s hours of service to the computation period in which the pay period ends simpler than crediting the hours to the computation period in which the pay period begins?

This is not advice to anyone.