Answer: Before I start with what the Treasury's position is on shared employees (which is the basis of my answer to Q&A 56), let's talk about what the Treasury's position isn't, namely the proposed regulations to 414(o), not 414(m). I quote from Chapter 5 of my book, Who's the Employer?:
Would the proposed 414(o) regulations have handled shared employees differently?
The proposed §414(o) regulations, withdrawn in 1993, would have given substantially more guidance on how to treat shared employees than we have now. They would have defined shared employees as persons who perform services as an employee for more than one employer at shared business premises or common locations.
However, the proposed regulations would have excluded some people from shared employee treatment. The proposal would have grouped all employees performing one type of function at the shared premises. It would exclude from these groups, with respect to a particular sharing employer, employees who:
Having set up these groups, the proposed regulations asked if the members of a particular group, collectively, perform at least 1,000 hours of service for that employer. If so, they are all shared employees of that employer. If not, none of them are. If, as is typically the case, the employees are shared equally by the sharing employers, all employees in a group would be covered if the total hours of service for the group equals 1,000 times the number of sharing employers.
- Perform at least 1,000 hours of service for that employer;
- Do not perform service for any other sharing employer; and
- Are covered by that employer's plan.
Of course, all of this is academic. The proposed regulations were withdrawn in 1993. Those who exclude employees from shared employee treatment based on the proposed regulations do so at their peril. The proposed regulations never said taxpayers could rely on them. Since they were regulations under IRC §414(o), they were not attempts to interpret the existing law, but rather to make law under authority granted by Congress. (See Chapter 15.) The IRS withdrew the regulations, and thereby disavowed their willingness to make them law.
In other words:
Now, given that the proposed regulations are not the law, what is the law. Again, I quote from my book:
- The proposed regulations attempted to state what the law should be, not what it is.
- Taxpayers were never told they could rely on those regulations when they were proposed. You could rely on them only after they were final.
- The Regs were proposed in the Reagan administration and withdrawn in the Clinton administration. Apparently, somebody in the government thought that the law should not be that way.
- It was risky for someone to follow those regulations while they were proposed. It is foolhardy for someone to follow them now that they have been withdrawn 7 years! I know folks who say "But that's the IRS' last word on the subject." No, the last word was "withdrawn."
Revenue Rulings 73-447 and 67-101 held that shared employees were full time employees of all parties sharing them. Both are pre-ERISA rulings, and as such, refer to Code provisions that are now obsolete. However, the logic of those Revenue Rulings is still valid. I add that my current research validates the IRS position from a common law standpoint. See Restatement of Agency, 2d Section 226.
Before ERISA, coverage requirements were based on whether a worker was a "full-time" employee. (ERISA replaced this with the requirement of 1,000 hours of service.) The rulings analyzed a shared employee situation in this light and concluded that the employees were the full-time employees of both employers. As Rev. Rul. 73-447 declared:
Whether the nurses are employed full-time with each corporation is not determined by the amount of services rendered to each. The amount of services rendered to each corporation may vary from day to day. Such variation does not, however, permit classifying the employees as part-time workers. The characteristics of an employee do not change when the efforts of such employee are shared by more than one employer.Unfortunately, these rulings have not been updated for ERISA's new rules. However, following the logic of the rulings, a shared employee is the employee of all employers using him or her. Each sharing employer would credit the employee with his or her full hours of service.